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The Senate takes on outsourcing this week

Senate Democrats have changed the subject from Bush tax cuts to outsourcing with a new bill this week designed to stem the flow of jobs going overseas. Their proposed method: tweaking the corporate tax code.

Can changing the tax code alter corporate behavior when it comes to hiring outside the U.S.?

I checked in this morning with Doug Shackelford, a tax professor at the University of North Carolina, to get his thoughts on the latest Democratic proposal. He's skeptical.

The plan would raise taxes on firms that move jobs to other countries to make products -- and then import those products back to the United States.

But this is becoming an uncommon scenario, according to Shackelford, who says companies these days are more often building plants in other countries because that's where their customers are. Markets are growing faster overseas than in this country, so that's where companies want to go.

He added that politicians have not fully grasped that the U.S. economy -- and by extension, U.S. tax policy -- no longer dominates the world the way it used to.

"We're still talking like it's the 1950s or some time period back when we controlled the world," he said. "Increasingly, we don't have the power in Washington to make modifications that are going to alter the way the world works. ... The average politician believes if we change our tax system it'll reverberate around the world."

There is a way, however, that some tax experts say the code can be changed to help the U.S. economy. My colleague Michael Fletcher and I wrote an article over the weekend about the estimated $1 trillion being held by U.S. multinationals overseas. Former Service Employees International Union president Andy Stern now thinks that companies should be allowed a tax holiday on their foreign profits that would encourage them to bring some of that money back to the United States and potentially hire workers.

Stern's solution has the opposite premise of the Democrats' plan: A company making bigger profits overseas isn't the enemy. In fact, it can help the U.S. economy, if it brings some money back home.

By Jia Lynn Yang  | September 27, 2010; 1:17 PM ET
Categories:  Corporate taxes  
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