How do tax incentives encourage outsourcing?

[TheFarseer]

I've heard this often, but I don't understand how exactly this is true. The only thing I can think of is expenditures for establishing overseas business sites can be deducted from your taxable income and also that Social Security taxes, etc are partially paid by employers here but not overseas. Can someone help me?

[mcscajun]

1. Start here...

The incentive exists because the US taxes corporations at rates higher than most other countries. According to the Institute for International Economics, the effective rate for US corporations was just over 30% in 2002, while mainland China's effective corporate rate was only 11.3%, Britain's 18.2%, Mexico's 15.1% and Indonesia's a miniscule 0.2%.

Furthermore, the US also attempts to tax money that US-based companies earn in other countries, but only after those profits are brought back to the US. That means profits that remain overseas, perhaps invested in new factories in low-tax countries, never get taxed at the higher US rates. And that's been true through both Democratic and Republican administrations.

http://www.factcheck.org/article225.html

And that's just the tax issue; certainly there are lower production costs, both from lower salaries, and lower or non-existent benefits costs for the workforce.