Obama proposes tax reforms to curb US outsourcing

Obama proposes tax reforms to curb US outsourcing

Summary: U.S. President Barack Obama suggests new minimum tax on foreign earnings to discourage American companies from moving jobs abroad to markets such as India, report says.


United States President Barack Obama has proposed a new minimum tax on foreign earnings that is meant to discourage American companies from moving jobs overseas to countries such as India as he looks to spark local industries back to life.

Indian news site The Economic Times, citing the U.S. Treasury Department, reported Thursday that the current business tax system in the U.S. does little to spur job creation and investment in the country while creating too many opportunities that encourage shifting production and profits overseas.

In a statement issued Wednesday, Obama pointed out that the current corporate tax system is "outdated, unfair, and inefficient". "It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America's small businesses to spend countless hours and dollars filing their taxes. It's not right, and it needs to change," he said.

With these concerns in mind, Obama has proposed to establish a new minimum tax on foreign earnings to discourage U.S. companies from outsourcing their jobs to cheaper markets such as India. "Introducing the principle of a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates," he said in the report.

Other measures include companies no longer being allowed to claim tax deductions for moving their operations abroad, and incentives--such as a 20 percent income tax credit--to be given to organizations that bring their operations, and jobs, back to the U.S., it stated.

A separate report by The Hindu Business Line on Thursday said India's IT and business process outsourcing (BPO) industry remained unfazed by Obama's proposed tax reforms.

"Ultimately, it is business sense that wins the day. We are yet to see the nitty-gritty of the framework he was referring to. But the U.S. companies spread across the world would weigh the pros and cons and then decide how to go about this," J.A. Chowdary, leader of The Indus Entrepreneurs, said in the report.

"Multinational companies are no longer coming to India for just cost advantage. India itself has emerged a market for companies such as Dell and IBM. They will factor in the local business interests before taking a serious decision," he added.

Analysts have previously told ZDNet Asia that anxieties over a possible economic recession are unlikely to put a dent on outsourcing demand, while Asian outsourcing companies are also moving up the value chain in their service offerings.

Topics: IT Employment, CXO, Government, Outsourcing

Jamie Yap

About Jamie Yap

Jamie writes about technology, business and the most obvious intersection of the two that is software. Other variegated topics include--in one form or other--cloud, Web 2.0, apps, data, analytics, mobile, services, and the three Es: enterprises, executives and entrepreneurs. In a previous life, she was a writer covering a different but equally serious business called show business.

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  • The mandarins at Treasury dept. should know these facts:

    1. IBM does local business of $ 4 Billion/year in India. If India applied the same yardstick as US, IBM will have to withdraw & lose this revenue. Also, many o fthe worldwide applications and services of IBM out of India will then cost much more and hurt American industry & business. Same goes for Microsoft, Cisco & others who do huge amount of development work in India. The Indians who actually develop this IPR do not benefit except by way of low-cost wages. All the big benefit goes to the US companies.
    2. Indian companies have been increasing the number of American employees in USA, and this figure to my knowledge exceeds 100,000. Should they be dismissed ?
    3. US has been gaining hugely from 'outsourcing' , and will not be able to go ahead in tech areas without this at all- the internal resources are simply not enough.
    4. I hope some grassroots politicians do not start a "Indians & Chinese go home" campaign. If they did, Indians & Chines will certainly go home from Silicon Valley, and it will become a ghost town.
    Basically Obama's move is pure protectionism, hopefully aimed at elections.
  • That's the problem...

    ...outsourcing meets one goal...revenue.

    I don't think Americans mind that India and China are stepping up to the plate to provide lower priced labor. The issue is that the revenue is going into corporate coffers so the wealthy are getting wealthier while the middle class gets squeezed.

    I suppose that's the "American Dream" but trust that as the middle class gets more and more squeezed, we may just see "American Dream 2.0" which would address this issue. Who knows what that will mean for India/China when the dust settles?

    Your guess is as good as mine...but for sure, your points are valid, so are the concerns of the American middle class. :)

    Don Montalvo, TX