The Halting International Relocation of Employment (HIRE) Act, introduced by Ohio Senator Bernie Moreno, proposes a significant shift in the landscape of international outsourcing. The bill aims to impose a 25% excise tax on payments made by U.S. companies to foreign entities for labor or services if those services ultimately benefit American consumers. This tax would apply to various forms of outsourcing payments, encompassing fees, premiums, royalties, and service charges. Moreover, the HIRE Act seeks to disallow tax deductions for these outsourcing payments. The collected revenue would be directed into a "Domestic Workforce Fund" to support apprenticeships, worker retraining programs, and grants to states, particularly those affected by job losses due to outsourcing.
While the HIRE Act is designed to incentivize domestic job creation and reduce reliance on overseas labor, its potential consequences are far-reaching and could disproportionately affect U.S. firms. The increased cost of outsourcing, potentially amplified by the loss of tax deductibility, could make it more expensive for American businesses to access specialized skills and services from abroad.
While the primary target appears to be countries like India, whose IT sector heavily relies on U.S. clients, the impact on American companies could be substantial. Experts suggest that completely ceasing outsourcing may be challenging for U.S. firms, as the scale of available talent in countries like India is difficult to match domestically. Consequently, U.S. companies might struggle to maintain large-scale operations solely with domestic workers.
The HIRE Act's definition of "outsourcing payments" and "foreign person" is broad, potentially encompassing various payments to overseas individuals or entities. This could create complexities for companies serving both U.S. and international clients, requiring them to calculate the tax only on the portion tied to American consumers, adding complexity in reporting and compliance. Moreover, the bill proposes a dramatic increase in penalties for non-compliance, further impacting U.S. businesses. The penalty for failing to pay would jump from 0.5% per month to 50% per month, with the usual 25% cap removed. Companies would also be prohibited from claiming this excise tax as a deductible expense.
The HIRE Act faces an uncertain path to becoming law. It currently lacks White House support, and it remains unclear whether even former President Trump would endorse the measure. The narrow Republican majorities in Congress suggest that any controversial bill would require extensive bipartisan negotiation. Moreover, the World Trade Organization (WTO) has a long-standing agreement preventing member nations from imposing duties on digital services, which could pose a challenge to the HIRE Act's implementation.
If enacted, the HIRE Act could reshape global outsourcing patterns and strengthen U.S. labor markets through reskilling and apprenticeship programs. However, it could also lead to increased costs and reduced access to specialized skills for U.S. companies, potentially harming their competitiveness. Some experts believe the bill is unlikely to pass, but the support of figures like Peter Navarro adds to the perceived risk. The possibility remains that the HIRE Act, in its current form, could serve as a bargaining chip in ongoing U.S.-India trade negotiations.
