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http://story.news.yahoo.com/news?tmp...n_kerry_tax_dc

By John Whitesides, Political Correspondent

WASHINGTON (Reuters) - Democratic presidential candidate John Kerry (news - web sites) will propose a broad change in international tax laws on Friday designed to discourage companies from shifting jobs to foreign countries.

In a speech in Detroit, Michigan, Kerry will propose ending a tax provision that lets companies defer paying U.S. taxes on income earned by foreign subsidiaries. He would use the $12 billion in annual savings for a 5 percent cut in corporate tax rates.

"Today we have a tax code that does more to reward companies for moving overseas than it does to reward them for creating jobs here in America," Kerry said in remarks prepared for delivery at Wayne State University in Detroit.

The proposal, one piece of a broader job-creation package to be unveiled over the next few weeks, adds to a growing election-year debate about U.S. companies that have shifted jobs overseas in search of higher profits.

Kerry called the plan potentially the biggest change in international tax law in 40 years.

"If a company is torn between creating jobs here or overseas, we now have a tax code that has American taxpayers paying to ship jobs overseas," he said in his scripted remarks. "That makes no sense."

Under current law, U.S. companies do not have to pay taxes on their foreign income until they bring it back to the United States. If they keep it abroad, they can avoid taxes entirely.

Aides said Kerry's plan would tax profits from foreign subsidiaries just like domestic profits and still allow companies to defer the income earned by production in a foreign country that serves foreign markets.

"He is eliminating what is a very clear incentive to relocate jobs overseas and then keep the profits overseas," said Kerry economic adviser Gene Sperling, who estimated the changes would affect about 600 U.S. companies.

The estimated $12 billion in annual savings would pay for a cut in corporate tax rates, from 35 percent to 33.25 percent, that would go to nearly all U.S. companies, aides said.

Kerry's plan also would expand a proposal for a manufacturing job tax credit that he first made last summer to include industries that the Commerce and Labor Departments determined to be at risk of being outsourced.

It also would offer a one-year, 10 percent tax holiday to encourage companies that are keeping profits overseas to avoid taxes to bring them back to the United States.

The Detroit address is the first of three speeches Kerry will deliver in the next few weeks outlining his plans to create more jobs, aides said.

The second will focus on proposals to ensure Americans have modern job training and skills, and the third will outline efforts to restore U.S. fiscal discipline and economic confidence.
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Although this may seem like a good change for the economy, this plan could effectively end up eliminating thousands of jobs domestically and internationally. Certain industries have outsourced or shifted their employees to other countries so that they can continue to offer everybody competitive prices on their products. Generally speaking, if a company can't compete in a marketplace they will 1) scale down their operations, which usually means many layoffs or 2) file for bankruptcy. That is a lose lose situation for ALL of the employees.

What will Kerry's response be if, for example, companies that outsource are hit with heavier taxes on those workers? The companies will have to find a way to subsidize those costs by 1) raising prices on their products or 2) cutting back somewhere else (which could potentially lead to job cuts or salary decreases). Speaking from a consumer's standpoint, higher prices suck. If I could buy a flash memory card for $50 from Staples for $35 from newegg.com I would order from newegg.

Though his intentions are good, I think that the long term success of such an initiative will fail. His second proposal to ensure Americans have modern job training and skills is far fetched as well. I have worked over a dozen jobs and internships in the past 8 years. All of my training has been performed by my employer, not the government nor some regulatory agency. So, who is spending the money to train me? The company. Who is utilizing manpower and resources to train me? The company. How does John Kerry think he can implement a plan to ensure Americans are given adequate and proper job training across every industry? It certainly won't be done in the 4 or 8 years he's in office.

Personally, I see more downside than upside to his proposals. Perhaps there is more than meets the eye, but his argument that companies are shifting jobs to create larger profits is correct, from one aspect. Viewing it from a consumer's aspect, the only way a company like Dell can offer me a computer loaded with the necessities for $350 (versus the $1,000 it would have cost 5 years ago) is by engaging in these price wars with their competitors and cutting their overhead costs (ie: outsourcing jobs overseas).

Sure, it would be great to bring more jobs back to the United States, but how many of us here on the boards are willing to be a customer service representative talking on the phone all day? I know I wouldn't enjoy that job, and I am guessing most of you wouldn't want to do it, including John Kerry.

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