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Insourcing: Newspeak for Protectionism

2 min readBy: William McBride

Today’s new word:

“With his re-election prospects hinging largely on the economy and jobs, President Obama today highlighted what he said is a growing trend under his administration: the “insourcing” of jobs back to America.”

Yes, this is all very good for America, but it reflects mainly the fact that Europe is going down the tubes, with many countries reporting economic contraction in the 4th quarter. Add to that the fact that many emerging economies, like China, are slowing down and showing signs of a burst credit bubble. But the danger is here:

“Obama plans to propose “in the next few weeks” a series of new taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. breaks for companies to help accelerate the return of jobs to the U.S. and end special tax treatment for those that ship work overseas. Neither he nor administration officials offered further details.”

The only special tax treatment that U.S. companies face in operating overseas is our antiquated and out-of-step system of worldwide taxation, whereby the IRS attempts to track down the foreign profits of U.S. corporations and applies a toll charge for bringing those profits back home. Any attempt to further restrict the free movement of capital or labor makes about as much sense as restricting the flow from California to Ohio. Imagine if the governor of California tried to prevent California companies from expanding outside the state. Would that create California jobs? No. Companies like Apple would curtail their out-of-state operations, such as manufacturing, distribution, and retail, and in turn curtail their complementary in-state operations, such as headquarters and research and development. There might be some “insourcing” of out-of-state manufacturing jobs, but at a higher cost, such that Apple as a whole would have to shrink, hurting workers, consumers, and shareholders, many of whom are Californians.

Protectionism doesn’t work at the state level, or the national level. President Obama seems to recognize that domestic jobs come from lowering the costs of hiring, including the tax costs. The most straight forward way to accomplish this is by cutting the corporate tax rate for all corporations.

Follow William McBride on Twitter @EconoWill