HR-7559-119
Referred to the House Committee on Ways and Means.
Sponsored by Austin Scott (R-GA)
What it does
This bill would amend the tax code to disallow business deductions for payments made to foreign persons for labor or services that benefit consumers located in the United States. Payments split between U.S. and non-U.S. consumers would be partly deductible based on the proportion of services directed abroad, and the Treasury Secretary would issue regulations to prevent avoidance through transfer pricing. The change would apply to payments made after December 31, 2025.
Who benefits
Domestic call centers, IT service providers, and other U.S.-based labor and service providers who compete with offshore outsourcing arrangements; U.S. workers in industries like customer service, IT support, and back-office processing who may see increased demand if companies shift work onshore; the federal government, which would collect additional tax revenue from businesses that previously deducted these payments.
Who is hurt
U.S. multinational corporations and small businesses that outsource customer-facing labor or services abroad, who would face higher effective tax costs; foreign service providers and workers in countries like India, the Philippines, and Mexico who supply outsourced labor to U.S. companies; consumers who may face higher prices if businesses pass through increased costs; tax and compliance professionals who would need to track and document the geographic split of mixed-use payments.
Supporters argue
Supporters argue that the current tax code effectively subsidizes offshoring by allowing full deductions for payments to foreign labor providers, giving companies a tax incentive to move jobs overseas rather than keep them in the United States. They contend that denying this deduction levels the playing field for domestic workers and service providers and could encourage companies to reshore customer-facing jobs that directly serve American consumers.
Opponents argue
Opponents argue that denying ordinary business deductions for legitimate services raises costs on companies regardless of whether outsourcing decisions are tax-motivated, and that this could simply increase prices for consumers or reduce competitiveness of U.S. firms against foreign competitors not subject to the same rule. They contend that the mixed-payment allocation rules would create significant compliance burdens and disputes over how to measure where "labor or services" are directed, particularly for globally distributed digital services.
Constitutional context
Congress has broad authority under the Taxing and Spending Clause (Art. I, §8, cl. 1) to define deductions and the scope of taxable income, and courts have historically given Congress wide latitude in structuring the tax base; there is no landmark case directly limiting Congress's power to deny a specific business deduction. The retroactive effective date (payments after December 31, 2025, applied to a bill introduced in 2026) raises a modest Due Process Clause (5th Amendment) question, though courts have generally upheld short retroactive periods for tax law changes.
Checks and balances
Congress would set the deduction denial and effective date through ordinary legislation; the Treasury Department/IRS would gain interpretive authority to write implementing regulations on allocation and anti-abuse rules, subject to judicial review under the Administrative Procedure Act and, post-Loper Bright, independent court interpretation of the statute.
Historical precedent
Congress has periodically restricted deductions tied to offshoring, including prior legislative proposals (the "Bring Jobs Home Act" and similar bills in past Congresses) that sought to deny deductions for outsourcing-related expenses, though none of these has been enacted into law.