Depleting The U.S. Tax Base?
Will the movement of high-paying technology jobs gut the U.S. tax base?Will the movement of high-paying technology jobs gut the U.S. tax base?
In all likelihood, the impact will be muted. Economy.com estimates 800,000 back-office jobs will disappear forever over the next five years. Assuming an average salary of $60,000, thats lost wages of about $50 billion. Multiply by 1.2 to account for the trickle-down effect, and lost wages add up to $60 billion.
The total tax loss comes to $13.4 billion—$7.5 billion in lost Social Security and Medicare revenue, $4.4 billion in federal revenue and $1.5 billion in state and local government taxes. In comparison, U.S. involvement in Iraq has run $4 billion a month.
Nevertheless, analysts say the tax issue shouldnt be ignored. For starters, companies are likely to choose to increase hiring in lower-salary countries even when the economy recovers. Electronic Data Systems is shooting for 20,000 offshore workers by the end of 2004, up from 9,500 currently. EDSs workforce is expected to remain at about 140,000.
"This cant be good for the middle class," says Virendra Singh, an economist at Economy.com. "The biggest effect is that people will lose well-paying jobs. I think some will land someplace else, but I wouldnt count on all of them. Some will move down the ladder." Next page: Tax impact of offshore outsourcing.