Published October 04, 2012
"No idea what you're talking about."
That was Mitt Romney's retort when President Obama repeated the claim during Wednesday's debate that companies are exploiting a loophole to ship jobs overseas. In one of the most memorable moments of the night, Romney said he's never heard of such a tax break in all his years in business.
So who's right?
Technically, companies can claim a deduction for the costs associated with moving jobs overseas.
However, the deduction is not a special loophole afforded only to companies moving work out of America, as the president sometimes makes it sound. Rather, the deduction is written into the tax code pertaining to any cost companies face in the course of doing business.
That means a company can claim the deduction whether it's moving operations to Bangalore or Boston, to Kuala Lumpur or Kansas City.
"Any cost of doing business is deductible," said Doug Holtz-Eakin, former director of the Congressional Budget Office who advised Republican Sen. John McCain in the 2008 presidential race. "There's no special (incentive to move jobs overseas)."
What Democrats want to do is end the deduction for firms moving overseas, in order to create a disincentive to offshore. What they say, though, makes it sound like the tax code is currently luring companies out of the U.S.
"But I also want to close those loopholes that are giving incentives for companies that are shipping jobs overseas. I want to provide tax breaks for companies that are investing here in the United States," Obama said Wednesday.
He went on to say: "Right now, you can actually take a deduction for moving a plant overseas. I think most Americans would say that doesn't make sense. And all that raises revenue."
Closing the tax break just for those moving operations overseas does not necessarily mean a windfall of revenue. The Joint Committee on Taxation estimated doing so would bring in $168 million over the next decade.
Romney countered at the debate that he wasn't familiar with the deduction.
"Look, I've been in business for 25 years. I have no idea what you're talking about. I maybe need to get a new accountant," Romney said. "But the idea that you get a break for shipping jobs overseas is simply not the case."
Obama was incredulous about that claim during a rally Thursday in Denver. "Never heard of tax breaks for companies that ship jobs overseas?" Obama told the crowd. He claimed the "real Mitt Romney" invested in "pioneers of outsourcing," suggesting he should know about the deduction.
Democrats have pushed legislation that would deny any tax deduction for opening up shop overseas at the expense of jobs in the U.S.
They have also pushed to eliminate the ability of companies to defer taxes on income earned overseas.
Holtz-Eakin said that's another piece of the tax code that Obama could have been referencing. Currently, U.S. companies operating overseas are supposed to pay both U.S. taxes and the taxes of the country they're operating in. To lessen the burden, U.S. tax code allows companies to defer the U.S. chunk of that until the money is brought back into America.