How Does the Tax Plan Affect My Job?

There are two ways the new tax law could meaningfully affect American jobs. First, the law creates enormous incentives for corporations to move jobs overseas. Over time, this could increase the trend toward outsourcing and offshoring. Second, the new law makes it cheaper for companies to replace jobs through automation.

Shifting Jobs Overseas

For many years, major U.S. companies have shifted jobs and profits overseas to cut costs. Far from bringing those jobs back, the tax plan could accelerate that trend and put more U.S. jobs at risk of being outsourced. That’s because the plan creates a new system for taxing profits that U.S. companies earn overseas. Under this new system, profits earned overseas face a permanent tax rate that is half of the domestic corporate tax rate. The domestic corporate rate is 21 percent, while the foreign rate is 10.5 percent. As a result, companies will have a major incentive to shift as many profits, investments, and jobs out of the U.S. as possible to take advantage of this lower tax rate and minimize their tax burden.

These effects could be particularly harmful for U.S. workers in certain industries, such as manufacturing. In addition to the reduced foreign tax rate, the tax plan completely excludes foreign profits equal to 10 percent of a company’s “tangible” investments abroad, like factories and equipment. Combined with the lower minimum tax rate, that means profits earned from manufacturing and other investments overseas could face essentially one-fourth the tax rate that they would face if they were located in the U.S. That provides a major incentive for companies to shift existing operations and new investments overseas, putting U.S. jobs at risk – especially in industries like manufacturing that rely on “tangible” investments.

Because the tax plan makes these corporate tax cuts permanent (unlike the tax cuts for individuals), companies can be confident that moving jobs and operations overseas will provide long-term tax benefits, even if they come at the expense of their American workers.

Encouraging Automation Instead of Jobs

The new tax law could also accelerate trends toward automation by increasing the tax savings for investing in physical assets, including machinery and robotics. Under the prior tax system, companies could deduct their investments in machinery and other equipment, but only over the course of a number of years. The tax plan changes that: Companies can now write off all of their capital investments immediately due to a provision known as “full expensing.” This change encourages companies to invest in robotics and other automated machinery, because they can get an immediate tax write-off for those investments, as opposed to hiring or training new workers. These effects could be especially harmful in certain industries that are vulnerable to automation, such as manufacturing and retail.


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