Benedict Arnold Outsourcing or Reasonable Business Practices? Part II of III: Punitive Taxation

Could the punitive taxes of the U.S. government be a reason why some businesses turn to outsourcing to gain a competitive edge? Consider the additional costs businesses incur complying with the current tax code: payroll taxes, capital gains taxes, taxes on raw materials, excise taxes, FICA, and property taxes. On top of all of these taxes, businesses also have to pay for costs to make sure they are legally complying to the confusing array of taxes. In fact, American businesses pay roughly $250 billion each year to comply with the current tax code. To make matters even worse for American businesses, the tax code is so complicated that no one person understands it completely. Even H&R Block, a company that specialized in filing income taxes for perhaps millions of individuals and businesses every tax season, reportedly filed its own taxes incorrectly understating its tax liability to the tune of an estimated $30.5 million.

Many people are under the impression that businesses have a duty to pay their share of taxes. I submit to you that this is the wrong approach. Whenever a company is required to pay taxes on raw materials, pay FICA (self employed people pay double what employees pay for FICA) and payroll taxes, and every other type of tax, these costs are figured into the overall cost of producing a product. While on paper businesses pay a huge sum of taxes, in reality the consumer is the one who foots the bill.

In order for businesses to cut down costs and bring more jobs to America, all business taxes should be immediately abolished. Many businesses decide to outsource their activities outside of the U.S. because of these very tax laws; many use offshore tax shelters to avoid these unnecessary costs. The solution to me seems very clear: why not make the U.S.A. the world’s largest tax shelter? Such legislation has been proposed in congress HR 25/SB 25 (more commonly known as The Fair Tax). The purpose of The Fair Tax is to eliminate the current income tax system which punishes success in favor of a consumption tax (sales tax) where taxes are only collected at the point-of-sale to the end customer. Where outsourcing is concerned, businesses would no longer be compelled to comply with punitive and confusing tax code and would attract more businesses to locate operations in the U.S. Until that day comes, business owners will continue to play this cat-and-mouse game with the IRS, looking for loopholes in the law and sending jobs that could be American jobs overseas.