1. Disallow expense deduction for foreign contracted labor. Deduction only available to companies providing W2 contracted labor. 2. Eliminate 1099 independent contractors: All human resources and laborers must be W2. 3. Provide a tax credit of 20% up to $20K for each full time W2 employee. 4. IRS penalty of 300% for violations + interest. This will create a tax incentive to hire full time US workers with a tax credit to cover benefits. The tax credit is cheaper than unemployment and public aide plus the worker's income generates income tax and spending. A $50K US worker provides approx $65K in deductions + $10K tax credit. A $20K offshore contract is paid from post tax dollars. A $20K US W2 contractor is 100% deductible. Levels the playing field. Corporations with nexus in the USA should be required to report and pay taxes on world wide income including all subsidiary and related companies to the US just like US citizens. Just doesn't seem fair that we have all of these hoops for foreign individuals to jump through in order to work or live in the US but any foreigner can own, open and operate a US based business for under $500.
You do know if you eliminate 1099 contractors that in itself would eliminate hundreds of thousands of small business and their employees and would cause thousands of bankruptcies by these small business not being able to earn a living and pay their bills.
I'm not saying to eliminate contracting out work. Only that the contractors should be W2'd by their employer who can then charge their client and the client will be able to fully deduct the expense. This is common practice for US Government contracting. They want the company to have control over the human resources they provide and be covered under their business insurance. If the client chooses to contract support staff from a call center in India they lose the deduction and pay from post-tax dollars. If the client contracts out support staff from a US call center that W2's their personnel they can expense 100% and pay from pre-tax dollars. If the client hires support staff they get the tax deduction and a tax credit. Assuming a corporate tax rate of 30%: US W2 Direct employee: $50K base + $15k benefits = $65K deductions + $10K tax credit = $30K in tax savings = net cost of $35K US W2 contractor via agency $50K pretax = $35K post tax The tax incentives provides approx 50% savings on the cost of direct hires, 30% on US W2 contractors and makes the offshore cost savings differential significantly smaller. Offshored non W2 contractor typically requires a 50% cost savings or more to justify. Currently a $15k off shore contractor is fully deductible and about 20% of the cost of a $65k US w2 employee ($50K + benefits). Under my scheme the difference would be $15K vs $35K. I see your point but unless we even the playing field the jobs will continue to flow offshore.
Before income tax, the USA generated revenue for government via tariffs. http://en.wikipedia.org/wiki/Tariffs_in_United_States_history We can level the playing field, but that will hurt corporate profits...and who makes the decisions where corporate profits are concerned? China won't allow their currency to increase in value, because it makes them less competitive. Why does America put up with unfair practices by foreign companies, along with US companies dodging their fair share of taxes?
I've done contracting work for the government and received a 1099 from the government under your plan I would have to be a W2 employee of the government while I did the work. What you're suggesting will not work, there are other problems with your idea also. You can't take away the right of Americans to own their own business. Why would a small contractor who makes over $100,000 a year running his own business want to become an employee of someone else at a lower wage and give up being their own boss? I don't think you realize how many small 1099 contractors there are and how it works.
80% Indians are willing to migrate to USA at $200/month salary due to http://en.wikipedia.org/wiki/Social_mobility
Since $200 a month is not a living wage, either they will be financed by family at home, or expect to receive financing from the US.
They won't come here for $200 a month. Years ago i did remodeling work on Indian owned motels. The motel owner would pay to get a family member over here, all the legal fees, travel and the family member would live in the motel and work for a few years to pay off the expenses. Even with room and board paid for the one man I got to know he was still paid about $1000 a month and free phone calls to call India. His cousin who paid to get him over here worked him like a slave though, 7 days a week 12 to 14+ hours a day. I can't remember exactly but I think the owner said it cost about ten thousand dollars for the legal fees and flight over, that was in the late 90's.
India has loads of muzzie terrorists in it. If muzzie terrorist training camps are near the offshore facilities, we should send in the fighter planes and wipe both out. This way, the Indians will think twice before stealing our jobs and will have to find better caves to have their terrorist training camps.
I'm saying that you have to be a W2 employee of your consulting business. Your business can bill the government or any other client for your services which qualify as 100% deductible expense. What I'm trying to disincentivize is your consulting business obtaining clients and then offshoring the work to foreign / non w2 contractors. The traditional idea of immigration controlling the number of work visas it issues would control foreign access to US jobs is broken. Foreigners with technology can be hired and managed abroad and no longer have to travel or set foot in our country to take our jobs.