Internalizing Offshoring’s Costs: The Outsourcing Cost Defrayment Act Of 2023

It is by now a near commonplace that the ‘globalization’ and ‘offshoring’ manias of the 1990s and after did not go as planned. China indeed grew, but it did not become America’s junior partner as its cheerleaders once cheerfully – not to say arrogantly – predicted. Prices, meanwhile, indeed dropped, but so did American wages and salaries, such that even the cheaper goods came to be priced out of reach for nearly all but those willing to rack up consumer debt in their purchase.

The Biden Administration and many bipartisan Members of Congress, to their credit, at last, have awakened to the dangers the past thirty years have now brought. They see the skewing of incomes and wealth and attendant dysfunctions that the Clinton/Bush version of ‘free trade’ has brought. They also see how the national security threat this all poses, not to mention the inflationary consequences of dwindling productive capacity.

Among the upshots have been the Inflation Reduction Act and CHIPSHIPS -0.7% & Science Act of last year. These enactments already are bearing fruit in the form of productive investments and new production facility buildings across the nation. One limitation of these efforts’ successes, however, has been their entire reliance on ‘carrots,’ with no ‘sticks,’ in pursuit of their aims. They rely, in other words, on tax breaks and other subsidies to secure the internal investments that we have been short of for decades.

Were the matter an ‘either/or’ proposition, that would be fitting and proper. Far better to encourage what we need rather than discourage what we can no longer afford if one has to choose. But in fact, one need not choose. One can both encourage what is wanted and discourage what is not, and in so doing obtain far more ‘bang’ for the ‘buck.’ And the fact is that outsourcing these past thirty years has been more than a cost – it’s been an externality imposed on American labor by outsourcing American firms.

This is what people like Clinton and Bush didn’t tell you when they cheer-led the gutting of American manufacturing. They touted the diffuse benefits of lower-priced goods made by underpaid labor abroad but said little to nothing of the concentrated costs that would be borne by ‘shed’ American labor and newly underpaid ‘service’ workers here at home.

Sure, at least Clinton made noises about ‘job retraining.’ But that never materialized in sufficient volume and in any case couldn’t have done so when all that remained in an ‘era’ when visionless politicians said ‘big government is over’ were fast-food and ‘care work’ jobs offered by oligopolies. And while Bush’s ‘ownership society’ blandishments might have seduced some, that racket was bound to prove a swindle when all that it meant was the further financialization of social insurance through the ‘privatization’ of Social Security.

Surely the time has come, then, to add sticks to our carrots and force outsourcing firms to internalize the costs they impose upon both American labor and society at large – which remains over 95% labor-dependent for its incomes. The Outsourcing Cost Defrayment Act that I reproduce here shows how easy this will be to affect. Without further ado, then, here it is.

The Outsourcing Cost Defrayment Act of 2023

1. Core Findings. Congress finds that the corporate practice of “outsourcing” American jobs to foreign, cheap labor jurisdictions causes immense harm to:

a. Working Americans, by taking away or lowering their incomes and putting downward pressure on wage rates economy-wide;

b. American Communities, by impoverishing their populations, lowering their property values and associated tax bases, and raising both crime rates and rates of dependency on social service programs;

c. American Consumers and National Security, by subjecting national supplies of goods, services, and even strategic materials to the vagaries of insecure global supply chains.

2. Additional Findings. Congress also finds that assessing a surtax from outsourcing firms will:

a. force firms to internalize the aforementioned costs that they currently impose upon Working Americans, American Communities, American Consumers, and National Security;

b. force firms to compensate the Workers, Communities, and Consumers they harm by outsourcing;

c. disincentivize firms from outsourcing in all cases save those where “offshoring” yields sufficient gains as can fully compensate all harmed American interests while still allowing for profitability.

3. Outsourcing Cost Defrayment Levy. Wherefore be it enacted that the Internal Revenue Service within the Department of the Treasury shall levy an Outsourcing Cost Defrayment Levy upon any firm doing business in the United States and employing American Workers that move operations off of American shores within five years before or five years after:

a. reducing the pay per hour of its American employees;

b. reducing the weekly hours available to its American employees; or

c. reducing the number of paid jobs available to American workers at the rate of pay that it paid prior to offshoring.

4. Calculation of Levy. The Outsourcing Cost Defrayment Levy shall be calculated as follows: For each year within five years before or after a firm offshores as provided for in Section 3 immediately above:

a. ascertain the number of current or former employees of the firm whose weekly pay has been involuntarily lowered by the Outsourcing Event;

b. ascertain the average difference in weekly pay between (i) what the current and former employees have earned prior to the Outsourcing Event and (ii) what the current and former employees are earning within one month after the Outsourcing Event (including those unable to find work), and call this the Wage Differential;

c. multiply the Wage Differential specified immediately above in Subsection B by the number of current or former employees specified in Subsection A, and call this the Outsourcing Cost imposed by the outsourcing firm;

d. levy the Outsourcing Cost imposed by each outsourcing firm against that firm, with the same periodicity as that of the firm’s wage or salary payments made to its employees prior to their loss of pay as specified above in Subsection b.

5. Use of Levy Proceeds. The proceeds of the Outsourcing Cost Defrayment Levy shall be paid out to the outsourcing firms’ current and former employees whose weekly pay has been diminished for two (2) weeks or longer by their outsourcing employers’ offshoring activity, in order to replace the Wage Differential for each employee for up to [five (5) years] after their firms’ Outsourcing Events.

6. Determination of Levy Beneficiaries. Any current or former employee of an outsourcing firm whose weekly pay has been adversely affected by an Outsourcing Event within the timeframes established above in Sections 3 through 5 shall be entitled to proceeds from the Outsourcing Cost Defrayment Levy in an amount closing his or her Wage Differential as defined in Section 4.b.; PROVIDED that he or she (i) has in good faith sought reasonably equivalent work within one month of the relevant Outsourcing Event, and (ii) has not been individually terminated for the cause rather than pursuant to the Outsourcing Event. Any outsourcing firm wishing to contest a prospective Beneficiary’s entitlement as just described may do so, but the burden of proof that condition (i) or (ii) as just described is unmet shall be on that firm.

7. Annual Recalculation of Benefit. Beneficiaries of the Outsourcing Cost Defrayment Levy as defined immediately above in Section 6 shall be eligible, per Section 5 above, for [five (5)] years’ receipt of the lost Wage Differentials; PROVIDED that the wage differential for each Beneficiary shall be recalculated each year of the five to account for any changes in the Beneficiary’s weekly pay, for better or for worse.