The Outsourcing Choice
May 23, 2004
"Two roads diverged in the woods...." and our Congress and the states have chosen the one most traveled by. Amid the media assaults on "Outsourcing" state legislatures across the land have passed anti-sourcing bills. To date there are at least 33 state houses which have passed such laws.
These laws are considered "Buy American" and encourage states to buy American goods regardless of cost or quality. These considerations may look appealing to the eye and speak to our patriotism but they have more serious repercussions. First they violate the long established free trade agreements and out rightly risk virtual trade wars, which would result in more restrictive trade. If the English can't sell to our government, why would England let our firms sell to theirs?
Secondly, they violate the United States Constitution. Specifically, it's the prerogative of Congress to run foreign affairs and regulate commerce. As the Wall Street Journal reported in the recent Natsios ruling, the Supreme Court struck down a Massachusetts statue, which barred its agencies from forming contracts with foreign suppliers. This was a unanimous ruling, which upheld the integrity of the commerce clause.
So that begs the question, should we respond to this dilemma or take the initiative and remain ahead of the issue? We claim that the knee jerk reaction is nothing more than a political farce to fool un-educated voters that they are actually doing something. In all likelihood, if these bills have any impact, it will likely be negative as other free trading nations back away to protectionism. The real solution is to enact policies before hand, which encourages U.S. investment and capital inflows to maximize the health of the U. S. economy and maximize the number of jobs.
Some proactive policies that will actually benefit the public at large would be a total overhaul of the U.S. tax code. Specifically, "Under the current IRS law, American multinational firms must pay the business taxes in the foreign county in which it earned the money and then they are whacked with a second, add-on tax of up to 35 percent if they reinvest capital here." As Stephen Moore from the Club for Growth reported, in addition to above, amounts to a "virtual tariff on capital. Furthermore, He indicates that we are "virtually the only nation in the world that penalizes repatriated capital in this way."
The Congress is deliberating a bill to reduce the 35 percent rate to 5 percent; this certainly is a desirable policy for next time around. However, such alterations done before or during the recession could have kept food on many more tables and brought more prosperity to America. Policies like these establish long lasting effects which will enhance all Americans' lives. Simply responding by jerking the knee to react to political pressure is nothing more than wasted paper and effort. We hope that Congress and the States will realize its authority and duty to enact sound policies, which are ahead of the curve, so that when the road diverges in the woods, they might choose the one less traveled by. That is how we see it FROM OUR PERSPECTIVE.