Congressional Democrats failed yesterday to pass a tax break designed to encourage U.S. companies to replace outsourced jobs with domestic hires. A cloture vote was blocked by unanimous Republican opposition, four defecting Democrats, and Sen. Joe Lieberman.
In all, it was a relatively conservative idea in the first place: the tax breaks would have applied only to employers, while employees hired as a result of the incentives would still have had to pay Social Security and Medicare payroll taxes. Despite this, Senate Democrats were unable to pass the bill, in large part because some of their own members voted against it. They now have little left to offer voters in the few days of work that remain before Congress goes on break. And yet, the president is on the campaign trail chiding his 2008 supporters for becoming apathetic.
Here’s how I described the tax bill on Monday:
With unemployment at nearly 10 percent for all Americans and significantly higher for both blacks and Latinos, the Creating American Jobs and End Offshoring Act, introduced last week by Sen. Dick Durbin of Illinois, is an 11th hour attempt to address unemployment in the remaining weeks of this pre-election session. The bill has already come under attack from conservatives who say it will hurt businesses and slow growth and some progressives who doubt it’s enough.
Durbin’s initiative would provide a two-year payroll tax holiday for companies that hire workers in the U.S. if the job would otherwise have been outsourced. The tax holiday would go into effect immediately and remain available for three years.
Payroll taxes, which include payments for Social Security and Medicare, are a significant financial weight for both employers and employees. The legislation would suspend the employer’s contribution to the payroll taxes for certain jobs. It would not, however, change the tax obligations of new hires, despite the fact that payroll taxes are generally considered to be some of the most regressive taxes around.
The bill’s drafters hope that by suspending employers’ payroll tax obligations, American companies will be more likely to hire U.S.-based workers.
In addition to the tax holiday, the bill closes loopholes and tax arrangements that actually provide incentives for companies to relocate jobs to other countries.
Passing a bill may never have been the point though. CNN reports that Democratic strategists admit that the bill was more political posturing than anything else and that congressional leadership never thought the bill would pass. With four Democrats voting against cloture, that line may get harder to tow.
Having decided to postpone their vote to end the Bush era tax breaks for the highest earners and unable to move any serious jobs bills, the Democrats enter the elections with less to show for themselves than they might have wished.