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How Outsourcing and Offshore Tax Evasion Affects the Economy

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We asked for several experts opinions on how outsourcing and offshore tax evasion has affected the economy. There are many different takes on this in the media today, so we wanted to find out what people from different industries actually thought. Hopefully you gain as much as we did by reading these insights:

Offshore outsourcing has been largely demonized and scapegoated in the United Sates during the recent recession, and unfairly so. Offshore outsourcing is merely another realization of the Law of Comparative Advantage, just like international trade, and like international trade it is an invaluable resource for economic growth and contributes to a global increase in the standard of living. I have personal experience with the impact of offshore outsourcing on the businesses that use it. I am the CEO of an IT staffing firm that offers a unique mixture of onshore and offshore outsourcing to bring clients superior custom software development. At its basic level, outsourcing is about saving costs, but that is an oversimplification; outsourcing is about gaining a competitive advantage that can be leveraged to gain traction in a market and succeed. While our service is specifically software development, we are in the business of making companies succeed by removing many of the limits on growth. Companies have finite resources, outsourcing merely allows them to focus more resources on the core aspects of the company (and here I am not referencing only money, but also time and focus-if the owner of a company does not have to worry about recruiting, hiring, and managing an additional department, they can pour that time and focus into other things.) We have saved companies from the brink of failure and enabled small, often one-man-shops, to grow ten-fold. By lowering the risk and cost of starting an IT company and making it more manageable, we have helped businesses begin that may not have otherwise. When companies are starting and growing because they have the means and the competitive advantage to do so, rather than shrinking and failing, the economy too can grow and thrive. Granted, the controversy of service outsourcing is eclipsed by that of manufacturing outsourcing, but the economic outcome is the same. Most individuals make purchases based on the economic merit of the product or service, not its nationality, and the ability to offer comparable or superior products or services at reduced costs greatly benefits the individuals who are purchasing them. Offshore outsourcing has allowed Americans on tight budgets to purchase great quantities of the resources they need. The migration of manufacturing overseas doesn't reduce American jobs so much as it changes them and creates new opportunities. I come back to the use of resources-when manufacturing requires fewer resources the company can invest more in other departments like research and development, sales, market research, etc. all of which create additional, specialized jobs onshore. Outsourcing doesn't steal American jobs so much as it changes the type of jobs and continues the shift in the American economy toward a more specialized workforce. Many of the arguments against offshore outsourcing are rooted in a kind of economic nationalism, but that is a narrowed and short-sighted view. We cannot deny that we live and function in a globalized world in which our economy is impacted by the health of other nations' economies. This last recession proved that. Isolationist economics at this point just isn't feasible, nor is it wise. It is in our best interest that other nations be prosperous, and their success does not come at our expense, but rather helps us. A stable, global economy is in our best interest and, to some degree, within our reach to help facilitate.

Randall Agee

CEO of Allshore Global Resources, LLC

The economic effect of government efforts to obstruct the attempts of entrepreneurs to outsource labor is systemic, wide-spread and economically insidious to the nations that adopt such practices as a matter of public policy. Conceptually speaking, it's easy to fixate on all the local jobs that are not being immediately created by a business's efforts to out-source because that is what is most easily seen by the naked eye of the observer: the empty seats of Americans whose jobs have been shipped overseas. But even more important than what can be seen are those factors which cannot - and what even fewer people even have the power to imagine. They are the possibilities that are not permitted to exist by the government's efforts to obstruct efforts to outsource. By forcing businesses to keep their operations on domestic soil, American businesses, in order to maintain their competitive edge against the products of foreign markets, must compensate for the increased cost of doing business in two ways. The first is by passing on the increased cost of manufacturing to the consumers in the form of higher prices. Consequently, due to these higher prices, American consumers, in turn, have less money to purchase additional goods and services in the marketplace or to invest in assets such as launching new businesses of their own. As a result, not only do American businesses earn less, but American consumers have less purchasing power. America as a whole is correspondingly poorer. The second way that American businesses defray the increased cost of production is by reducing the size and scale of the organizations into smaller, leaner operations with fewer employers. As a result, when government forces businesses to conduct their manufacturing activity on domestic soil, there are fewer opportunities to hire new talent for businesses, and with fewer work opportunities come increased unemployment rates. So not only does government obstruction of outsourcing increase the cost of manufacturing, but it also hurts the GDP of the nation by decreasing the purchasing power of the consumer, destroys the opportunities for organizations to hire new talent and results in increases in the national unemployment rate.

M.A. Carrano is an experimental philosopher and systems consultant living and working out of New Haven, Connecticut. A former U.S. Congressional candidate, Carrano is the sitting Chair of Philosophy for The Libertarian Party of Connecticut as well as an acting representative of the Global Association of Systems Thinking.

Companies will no doubt try their best to cut corners and save as much money on their taxes. It's no surprise that every bit they can do helps, especially when we're talking about millions (if not billions) of dollars each year. What is surprising, however, are the loopholes so many companies use to their advantage to save themselves money. Where is the line between scrupulous tax savings and flat-out tax evasion?

A popular tax loophole being used by companies like Google, Apple and Facebook has been nicknamed the "Double Irish" strategy, due to the loose corporate tax laws in Ireland. This method allows them to avoid income tax if that income (profit) was earned by a subsidiary overseas, even if the company that owns it is based in the U.S. Three companies are involved in this: the U.S. company, one based offshore (such as in the Bahamas or Cayman islands) and a company in Ireland. Patent rights are licensed to the company in Ireland from the offshore one, and the income is low because of royalties and fees paid to first.

The process may seem a bit convoluted, but these companies are estimated to have save about $8 billion in recent years. There are a lot of ways to slice that figure up, but it leaves people wondering if it's fair that they can pull this off. These corporate juggernauts are not exempt from paying American taxes, so is it fair that they can exploit this loophole and save so much every year?

Dan Wesley
President of CreditLoan
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