S2976-119

What This Bill Does

The Halting International Relocation of Employment (HIRE) Act imposes a new 25% excise tax on any payment made by a US business to a foreign person for labor or services that ultimately benefit US consumers. This covers outsourcing payments such as premiums, fees, royalties, and service charges. The bill also denies any income tax deduction for these outsourcing payments, creating a double financial penalty. Revenue from the tax is directed into a new Domestic Workforce Fund administered by the Department of Labor for worker retraining, apprenticeship programs, and grants to states for workforce development in communities hit by outsourcing. Penalties for failure to pay the new tax are dramatically elevated to 50% (vs. the standard 0.5%).

Who Benefits and How

• US domestic workers and displaced workers: Direct beneficiaries of the Domestic Workforce Fund, which finances retraining programs, apprenticeships, and state workforce development grants targeted at communities with high job displacement.
• Domestic service providers and businesses: Gain a competitive advantage over foreign outsourcing providers because the 25% tax plus lost deductibility makes offshore outsourcing substantially more expensive for US companies.
• State workforce development agencies: Receive new federal grant funding for workforce initiatives.
• Department of Labor: Gains new programmatic authority and funding for workforce development.

Who Bears the Burden and How

• US companies that outsource services offshore: Face a 25% excise tax on outsourcing payments plus loss of tax deductibility, dramatically increasing the cost of offshore outsourcing. Companies in IT services, business process outsourcing, customer service, and other sectors heavily reliant on offshore labor would be most affected.
• Foreign outsourcing service providers: Face reduced demand from US clients as outsourcing becomes more expensive, potentially losing significant market share.
• US consumers: May face higher prices as companies either absorb higher costs or pass them on, particularly in sectors where outsourcing has driven down service delivery costs.

Key Provisions

• Imposes a 25% excise tax (new IRC Section 5000E) on outsourcing payments by US persons to foreign persons for services directed at US consumers, effective for payments after December 31, 2025.
• Defines "outsourcing payment" broadly to cover premiums, fees, royalties, service charges, or any other payment made in a trade or business to a foreign person for labor/services benefiting US consumers.
• Provides a pro-rata allocation rule for mixed payments where services benefit both US and non-US consumers.
• Denies income tax deductions (new IRC Section 280I) for any outsourcing payment, effective for payments after December 31, 2025.
• Establishes a Domestic Workforce Fund (new IRC Section 9512) funded by excise tax revenue, dedicated to workforce development, retraining, apprenticeships, and state grants.
• Increases failure-to-pay penalties to 50% (from 0.5%) for the outsourcing excise tax.
• Grants Treasury authority to require information returns and anti-avoidance regulations covering related parties, controlled foreign corporations, intermediaries, and transfer pricing.