From Obama to Oh! Bama

The Obama we hooted for, has turned to Oh! Bama with a single statement. It has started off intense debates across India. Is he good for us or not- overlooking the fact that he is the president of United states and not India !

With the restrictions on H-1B visa and now the proposed cut on tax incentives for those who outsource, Obama has become more protectionist in his approach than one would have expected or imagined. Some would say he is trying to play to the gallery after all at this point of time , politicians are needed to be seen to do something about job losses. Rationalists would ask what’s wrong with that, with so many job losses, he had to resort to certain measures.

A few quick questions to ponder

• Do the Tax Sops offered, outweigh the benefits of outsourcing?
• If the American companies don’t outsource their work and have an all American workforce then given the kind of wages they would ask for, how much competitive could they remain?
• And if they can’t remain that competitive then wouldn’t it push America and the world economy in greater crisis. Talk about self goal and here it is!

What exactly are the tax benefits that are being talked about?

Experts say there is really no direct tax incentive awarded to US companies who transfer jobs to other countries. Rather, What the US tax code has is an old provision that allows American companies to defer income tax payments on offshore profits until they are repatriated back home. Here the catch word is –“until they are repatriated back home”

Many bloggers have said that
American companies can stop repatriating offshore profits to America. It won’t be too tough for them to find another nation more willing to let them keep their money. And if that happens wont the US Govt. will be at loss after all the American government needs these profits more desperately than anyone else.

However experts believe that
Obama may target the same catch word. i.e. he may make the companies liable for tax payments irrespective of they repatriate the payments back home or not?


What won’t happen for sure?
That this will dampen outsourcing or kill the industry or bring back the jobs to US or put the economy back in shape. If these are the possibilities that US lawmakers have in mind then one can’t do anything but be sorry for their shortsightedness.
By ushering into protectionism, precisely the wrong thing to do in the middle of a global recession, Obama will do more harm to global economy then help it resurrect it.

Also

As said by Viral Thakker, Head of Sourcing Advisory, KPMG
“President Obama’s statement, and ensuing policy action, might affect China more than India, as the share of manufacturing is relatively high as compared to services, where outsourcing is concerned. And, China is currently the biggest supplier to the US in the manufacturing space.”
Many believe that the statement was made more to curtail the negative sentiment that is setting in the US rather than to stern the increasing job losses

Look at the first few reactions assorted from the net and you may get to sense the mood.
“US companies just cannot afford to have an all American work-force and still stay in business after paying American standard wage rates.” - A reader’s comment on ET
“You can’t force companies to do things that are not in their best economic interests. Well maybe you can as president but it’s not a good idea”- a comment on a Philippine discussion forum.
"This is just irrational protectionism," says Montek Singh Ahluwalia, deputy chairman of India's Planning Commission. "It makes no economic sense at all."
“In the country, which taught the world lessons of `open economy’, the demand for protectionism is getting louder.” – An outsourcing blog.

One of the amusing post that is floating on the internet these days sums up the entire discussion. It is Marc Faber’s comment on the US economy.

“The federal government is sending each of us a $600 rebate.
If we spend that money at Wal-Mart, the money goes to China.
If we spend it on gasoline it goes to the Arabs.
If we buy a computer it will go to India.
If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala.
If we purchase a good car it will go to Germany.
If we purchase useless crap it will go to Taiwan and none of it will help the American economy.
The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US.
I’ve been doing my part.”