Title: Outsourcing: The negative effects
Headings: Outsourcing: The negative effects
Outsourcing: The negative effects
Content: As an example, If a company decides to outsource and the U.S. Employees only consist of 20% , then it should pay at least 80% income tax (Wattier). Multinational compaanies such as Microsoft and Google have already outsourced to several low tax countries and as a result, the federal government lose income tax revenue due to loss of jobs and corporate income tax revenue because of companies outsourcing. In the United States, the corporate tax rate is 39%, which is the second highest in comparison to Japan with a rate of 39.5%, discouraging foreign investment from companies in both the US and Japan and gives US based Multinational corporations the incentive to move abroad. Countries like Ireland, which has almost zero royalty income and a corporate tax rate of 12.5%, would be considered a tax haven for companies that want a high profit margin. A study conducted in 2008 by the Organization of Cooperation and Economic Development shows that foreign direct investment increases by 3.7 % for every one percentage point decrease in the corporate tax rate (Wolverson and Gardner). Companies are offered tax credits and additional incentives that would lead them to send jobs overseas, thereby achieving a higher profit margin, cost savings, but the biggest downside of it is the loss of jobs in the United States (Wolverson and Gardner). There are two very important factors that have led to the loss of American jobs. One of the factors is automation through the use of technology, particularly in sales and retail, where the need for salespeople has decreased dramatically. However, the biggest factor of all is outsourcing to countries that have lower salaries and little to no environmental regulation. What is not realized is that by companies outsourcing jobs to poorer or developing nations, the income of employees have not increased, while the cost of living has increased significantly and their employers continue to reap the benefits.