Need for rethink

SECOND EDIT

US President Barack Obama’s proposed withdrawal of tax breaks to American firms outsourcing jobs overseas has come under fire from within the US. A study by the Technology CEO Council, a Washington-based advocacy group of American tech-companies, has found that the move, far from generating jobs in recession-hit US, is likely to worsen the unemployment scenario in the country. It will cost 2.2 million Americans their jobs. Besides, investments in the US in plant, equipment and property could fall by around $ 84.2 billion, the study warns. Repealing or sharply limiting deferral would not generate large tax revenues as substantial job losses, wage cuts and lower investments would reduce tax revenues. The study’s findings should serve as a wake-up call to the Obama administration.

Barely a month ago, the US President announced a series of measures to kick-start the American economy. In a bid to encourage American companies to create jobs in the US rather than abroad, he said that companies that outsourced work would not get deductions on their expenses any longer. He promised tax cuts to companies that create jobs locally and invest in research and development in the US.

Obama’s offer of tax cuts to US companies creating jobs in Buffalo rather than Bangalore kicked up a storm. The IT and BPO sectors in countries like India, Philippines and China, who have benefitted from US outsourcing, criticised the Obama administration’s proposed protectionism. But they were not alone in decrying the move. Corporate America expressed its grave misgivings too, seeing the measures as harmful to the competitiveness of US companies. And now, a study by the Tech CEO Council provides figures to back up these warnings.

Outsourcing work has enabled American companies to cut costs and remain competitive. It makes business sense. This was what prompted companies to outsource work overseas in the first place and the logic holds to date. Besides the low cost of operating from countries like India, they have found skills here that they do not back home in the US. With the talent pool in fields like accounting limited at home, US companies have preferred to get the work done abroad. Obama’s moves will stand in the way of their tapping into overseas talent. Yes to Buffalo, no to Bangalore is great political rhetoric but it is no solution to the US economic woes. Obama needs to rethink this move.