Nate Oman at Tutissima Cassis offers a clever — and, I believe, correct — follow-up to a recent blog on outsourcing and John Kerry’s proposal to solve this alleged problem. Here’s the heart of Oman’s analysis:
As I understand it, Kerry’s brilliant idea is to use the tax code to punish American businesses that outsource abroad. De facto what this means is that when an American company purchases goods or services outside of the United States it must pay a tax. This sounds like a tariff, right? Here is the cute part, though, if the American company purchases the goods and services from a foreign firm rather than from itself it pays no tax. So imagine this scenario. I am a manufacturer. As part of my final product I must use widgets. I have been producing widgets in the United States, but I find that it is less expensive to produce them abroad. If I move my widget production abroad, however, I will be hit with the Kerry tax. On the other hand, if I simply purchase my widgets from a foreign firm I will not be hit with the Kerry tax.
Read the entire post.
One lesson, as always, is beware of unintended consequences.