Recently introduced legislation would impose an excise tax on payments to foreign persons for services that directly or indirectly benefit U.S. consumers – and tax and accounting firms are taking note.
HIRE Act
Last month, first-term Senator Bernie Moreno (R-OH) proposed the Halting International Relocation of Employment (HIRE) Act, S. 2976, to establish a 25% tax on “outsourcing payments.” The bill defines these as payments made “in the course of a trade or business” to a “foreign person” for ” labor or services” that are “directed, directly or indirectly, to consumers located in the United States.”
The bill also would prohibit deductions for companies’ outsourcing payments. It would do so by adding these payments to the list of taxes for which deductions are not allowed under IRC § 275.
Moreno proposes placing funds raised by the new tax and associated penalties into a “Domestic Workforce Fund.” The aim would be to support Labor Department workforce development and retraining programs, apprenticeship programs and other industry partnerships, and state workforce development initiatives.
Initial Effort Fails
While the bill was formally introduced early this month, Moreno sought unanimous consent to pass the bill in the Senate on September 16. In his floor remarks, Moreno contended that “corporations, unfortunately, chase slave wages in other parts of the world where they can pay people $5 a day.” He added that his bill is not meant to “control what corporations do,” rather it will “create guardrails.”
Senator Jacky Rosen (D-NV) objected to Moreno’s unanimous consent effort. However, it’s important to note she agrees that “cracking down on outsourcing and supporting American workers is an important goal.” While Moreno characterized Senate Democrats as “blocking” the legislation, Rosen described her objection as procedural.
Rosen told the freshman senator that “for some things, this isn’t the way we make laws.” For “complex legislation,” committee review and work with colleagues is necessary, she said. But Rosen added, “You have my commitment to move forward. I am with you.”
Notably, Moreno is not a member of the Senate’s taxwriting committee – nor is Rosen – and it’s unclear if Senate Finance Committee members support the effort. Currently, Moreno is listed as the sole sponsor of the HIRE Act.
Tax Community Reacts
While the focus in recent weeks has been funding the government amid a shutdown, the tax and accounting community has also taken note of Moreno’s bill.
“Washington is suddenly all abuzz” about the bill, said KPMG’s John Gimigliano. “My phone will not stop ringing with folks asking about this bill,” he added.
On whether to take Moreno’s proposal seriously, KPMG’s Jennifer Acuna said that “if it had been released by a Senate Finance Committee member, I would say it’s … totally acceptable to be panicking.” But while the bill should be ignored, “it is certainly not time to panic.”
PwC’s Janice Mays noted that “thousands of bills are introduced every year. This is one of those.” She stressed that “it’s not a particularly well known one, unless we make it well known at this point.”
But the potential impacts of the bill are substantial for businesses. Mays explained that when you add together the bill’s 25% tax and its limitation on deductions for outsourcing payments, “that’s a 46% tax rate.”
The Tax Foundation’s Alan Cole described the proposal as “triple taxation relative to the normal single layer applied by traditional global income taxes.” That triple tax would consist of the current tax on “the US portion of value-added,” as well as a tax on the “foreign portion of value-added” and the 25% excise tax.
McDermott Will & Schulte’s Caitlin Howe and John Karasek also had a strong reaction. They contend in a recent post that “businesses should be aware that a truly seismic change affecting nearly all companies that leverage offshore outsourcing and multinational enterprises may be imminent.” They predict impacts on foreign service providers, U.S. companies with foreign vendors or service providers, and foreign affiliates serving U.S. consumer-facing operations.
But Howe and Karasek point out that the bill leaves open the question of how a “benefit” to a U.S. consumer will be defined, as well as technical questions about mixed payments, apportionment, and more. Cole, too, says the HIRE Act would require “tracing foreign work that serves US consumers” – something he says is “often impossible to determine in practice.”
Statements in support of the bill have, thus far, been limited. Moreno shared that Charter Communications has endorsed the HIRE Act. The group says the legislation “recognizes the value of a high quality, onshored workforce.”
Moreno’s office had not responded to Checkpoint’s inquiry about additional support as of press time.
Next Steps
Acuna said now is the time to provide feedback on the HIRE Act to Moreno’s office and the Senate Finance Committee.
She is skeptical of Moreno’s proposal passing on a bipartisan basis. Acuna did note past efforts by both parties to “stop the bleed of jobs overseas” – adding that there may now be “an acknowledgement” that’s not possible. Instead, she said, recent efforts by Democrats and Republicans seek to “tilt the economic incentives” related to job location.
However, while tackling job outsourcing may be a bipartisan issue, Acuna said that “the way the parties go about executing that policy goal has been very different.”
The “most likely option” for the HIRE Act to advance, said Acuna, is if it finds its way into a Republican reconciliation bill. Such a bill could be passed anytime between now and the end of fiscal year 2026.
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