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posted: 7/26/2011 5:00 AM

A solution to moving American jobs overseas

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The letter, "Tax breaks have led to job outsourcing," in the July 16 Daily Herald, has it all wrong. Federal tax cuts have nothing to do with companies outsourcing jobs.

The federal income tax on American companies is what forces them to move production lines and jobs overseas. Corporations can only get the money to pay their taxes or their employees or anything else from sales of their products.

"Consumers pay all taxes" is a truism. We might add, "and tax compliance costs" to that comment, because company compliance costs often exceed the amount of the tax. Consumers pay more when companies are taxed.

The WTO considers our income tax an "inclusive" tax and, therefore, prohibits rebating it or waiving it when American products are exported. American products have an average 26-percent federal tax hidden in their prices. When we export, countries receiving our products slap their federal tax -- usually between 15 and 30 percent -- on products. Effectively, our products sell abroad with about 50 percent tax added.

But imports to the United States, with a couple of very minor exceptions, are not subject to federal tax. Any American manufacturer is encouraged to move its production lines and jobs overseas. That way, it immediately realizes a cost reduction greater than the entire labor cost and can ship anywhere from that foreign factory, including to the U.S., without federal tax.

There is a way to correct this. It is known as H.R. 25, The Fair Tax Act of 2011. Urge your Congressman to support it.

Peter G. Malone

St. Charles