Will a Call Center Tax Improve the Unemployment Problem?

Many of you may not be familiar with the newly proposed “call center tax,” however the topic is likely to gain a decent amount of attention over the next few weeks. To help all of my readers stay updated on this recent tax law development, I have put together the following article explaining this new and controversial tax proposal.

The Basics

Senator Charles Schumer (D, NY) recently proposed new legislation to tax US companies - $0.25 per call that is outsourced to a foreign call center. The idea behind the suggestion is to encourage businesses to use domestic call centers, in hopes that this would help reduce unemployment numbers. The proposed law would also require that consumers are warned that their call was being transferred to a foreign call center.

No tax would be imposed on domestic call centers, as Schumer is hoping this will “provide a reason for companies that have already outsourced jobs to bring them back.”

History of Job Losses

Statistics from the Technology Marketing Corp. show that between 2001 and 2003 the United States lost approximately 250,000 call center jobs to India and the Philippines alone. Additionally, reports show calls from within the U.S. are often routed to Indonesia, Ireland, Canada, and South Africa. Wages are much lower in these countries and companies operated in the United States can often reduce expenses by outsourcing calls.

Cost Effective?

Since 2003 the country has gone through an economic recession and more Americans are willing to take lower paying positions as unemployment problems continue. In fact, new call centers have been set up in North Dakota, Michigan and Nebraska that have become increasingly competitive with off shore centers.

Breaks, Not Penalties

As opposed to enacting a “penalty” excise tax on businesses that do outsource, some experts are suggesting that the government provide tax breaks to domestic call centers. This would help the economies of the states like North Dakota, Michigan and Nebraska and also provide incentive to businesses to keep call center and related jobs in the United States. However, other economists argue that in today’s international economy, call centers could easily reduce prices to stay competitive no matter what the federal government does.

Protection for Consumers

Senator Schumer claims the proposed law would serve to protect the privacy of American consumers. Many of the places to which calls are currently being outsourced do not have the same strict regulations regarding the storing of personal information such as credit card numbers. Therefore, to incentivize the use of domestic call centers by US companies, more consumers would know their personal information is being stored securely.

Potential Issues with WTO

Some critics of the proposal are warning that it could raise the potential of retaliation from other countries because of WTO agreements. Reportedly, taxing only international calls violates the “basic principle of national treatment.” According to WTO.org “imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services.”

Paper or Plastic? D.C. Taxes on All Disposable Bags

Earlier this week Washington DC council members passed a new tax in the amount of 5 cents on all disposable grocery bags. The decision was unanimous and as the council claimed it would greatly help the environment. Check out an article on the new tax below, courtesy of Wilja.com.

Mike Carter says that's "a good idea, if it's going to help the environment."

The tax impacts both paper and plastic disposable bags.

"I think it's a good thing if people are taxed on their bags," said Raisa Stebbins. "They'll stop using using bags -- better for the environment, better for the people."

The bill prohibits businesses from paying the fee on behalf of customers. Establishments caught not taxing customers face a $100 fine for the first violation, $200 for the second and $500 for the third violation within one calendar year.

"I like the concept of what they are trying to accomplish but as a general rule, I don't like taxes," said Peter Brown.

Four of the 5 cents from the new tax will go to cleaning up the Anacostia River. The other cent will go to businesses to off set the cost of implementing the new tax.

"It's an incentive for people to bring their own bags, so it could have a good effect," added Felicia Sonmez.

And if you do bring your own reusable bag, you won't be hit by the nickel tax.

New Tax Proposals Target Life Insurers

According to the Wall Street Journal, President Obama is hoping to generate over $12 billion in federal revenue from new taxes on life insurers. “The provisions in the Treasury Department tax plan released last week would restrict several products that have drawn attention from regulators in recent years because of the way they use life-insurance policies as vehicles for minimizing taxes on investments.”

The proposals would restrict several tax breaks received by purchasers of insurance or insurance companies themselves, and also require more information reporting in some cases. Industry representatives say the changes would hit sales in at least one significant area of the business, corporate-owned life insurance.

Several industry trade groups, including the American Council of Life Insurers and the Association for Advanced Life Underwriting, wrote last week to leading lawmakers, expressing opposition to the proposals. "Especially during a financial and economic downturn, increasing taxes on products and on an industry that encourages American consumers and businesses to plan for the future and effectively manage risk is unwise public policy," they said.

Insurance industry representatives also argue that now is a bad time to seek more taxes from the industry, given companies' recent losses on investments. The Treasury has given several big life insurers, such as Hartford Financial Services Group Inc. and Lincoln National Corp., preliminary approval to receive billions in federal aid.

A Treasury official said the tax proposals are unrelated to the federal capital infusions, adding that the insurers applied for that money months ago. The proposed tax changes generally would take effect in 2010 or 2011.

The official said the proposals are aimed at restoring fairness to the tax code. "Our proposals are designed to make sure when it comes to paying taxes, everyone pays their fair share," she said. She noted that some of the proposals are aimed at purchasers of insurance, not the companies themselves.