Q: Do companies get a tax break for shipping U.S. jobs overseas?
A: Not specifically for that reason. But companies can deduct business expenses, including the cost of moving a job to another state or even out of the country.
FULL QUESTION
President Obama said on the campaign trail that there is a tax break for companies that ship jobs overseas. That was in response to Mitt Romney’s statement that there is not a tax break for companies that ship jobs overseas. Who is right??
FULL ANSWER
Do companies get a tax break for shipping U.S. jobs overseas? Several readers asked us that question after it came up during the first debate between President Obama and Mitt Romney.
Obama claimed that “companies that are shipping jobs overseas” get tax breaks, saying that they “can actually take a deduction for moving a plant overseas.” But Mitt Romney said that he had “no idea” what the president was talking about, adding that “the idea that you get a break for shipping jobs overseas is simply not the case.” And both men are right, in a way.
There is no specific tax break for the sole purpose of relocating a U.S. job to another country, as Romney said. But the tax code does allow companies to deduct business expenses when calculating their tax liability. And those expenses can include the costs of moving a job to another state or even to another country, according to tax experts with whom we spoke. The White House confirmed in an email that that is what Obama was referring to in the debate.
“Firms can generally deduct business expenses,” said Kimberly Clausing, the Thormund A. Miller and Walter Mintz Professor of Economics at Reed College. “Thus, of course, if firms incurred expenses in moving abroad, they would be able to deduct those expenses.”
“My interpretation is that the President’s statement was accurate,” she said in an email to FactCheck.org
William McBride, chief economist for the pro-business Tax Foundation, agreed with her point about the ability of companies to deduct moving costs as a business expense.
“There are no special tax provisions that provide incentives to move overseas, but, of course, in general, the IRS allows companies to deduct business expenses, one of which is moving expenses, whether within the U.S. or abroad,” he said.
Obama has called for Congress to change current law so that firms can no longer reduce their tax payments by deducting costs associated with moving their operations outside of the country.
Another Kind of Tax Break
We’ve also written before on several occasions that the tax code has long allowed U.S. corporations doing business abroad to defer paying taxes on any of their “unrepatriated income.” That is to say that the revenue earned by the company’s foreign subsidiary remains untaxed by the IRS until that money is brought back to the parent company in the U.S.
Sometimes politicians also refer to this as a “tax break for shipping jobs overseas.” And Clausing told us that this part of tax law could motivate companies to move business abroad.
“This can provide a huge incentive for locating jobs and income abroad, since many tax haven countries have tax rates that are very low, even approaching zero, and thus the money can grow abroad ‘tax free’ until it is repatriated,” she said.
Others, like the Tax Foundation, see tax deferral as a means of making the U.S. more competitive in the global economy, and providing a “level playing field” for U.S.-based multinational companies.
It’s debatable to what extent the tax break factors into a company’s decision to move operations out of the U.S. But the fact remains that it is there for those who may want to take advantage of it.
— D’Angelo Gore
Sources
Commission on Presidential Debates. President Barack Obama and Former Gov. Mitt Romney, R-Mass., Presidential Candidate, Participate in a Candidates Debate, University of Denver, Colorado. Transcript. 3 Oct 2012.
McBride, William, chief economist at the Tax Foundation. Email interview. 4 Oct 2012.
Clausing, Kim, professor of economics at Reed College. Email interview. 4 Oct 2012.
Whithorne, Bobby, White House spokesman. Email interview. 4 Oct 2012.
White House Office of Press Secretary. “President Obama Calls on Congress to Act on ‘To Do List’ to Create Jobs.” Press Release. 8 May 2012.
Department of the Treasury. “General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals.” Feb 2012.
FactCheck.org. “Kerry Blames Corporate Tax Code for Shipping Jobs Overseas.” 28 Jul 2004.
Tax Foundation. “What Is Tax Deferral?” YouTube video. 11 May 2009.