If US companies are off-shoring jobs, it is because it is cheaper and more efficient to get these jobs done outside. A week ago, Obama also said that if tax breaks had to be given, he would rather give them to companies that created jobs in America. Outsourcing may be a political football, but let India sit tight and watch the fun.
If you keep repeating half-lies, you will soon start believing them. This is the case with Barack Obama, beleaguered president of the US. With his Democratic Party facing a rout at the November elections, Obama is switching to populist mode in domestic politics, where the big concern is jobs.
Obama has chosen the outsourcing industry for a bashing. He said: “For years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries.”
Here’s our advice: Please do withdraw them, Obama. There are no tax breaks for shipping jobs overseas. What Obama was probably referring to was the tax law, which allows US companies to keep the profits made overseas outside. Since these profits are taxed only if they are repatriated to the US, Obama thinks this is a tax break.
The truth is, capital is kept where it fetches the highest return. If US companies are off-shoring jobs, it is because it is cheaper and more efficient to get these jobs done outside. The profits from these operations are probably better deployed there. If Obama decrees that every dollar earned must be repatriated here and now, so be it. He may earn more taxes in the short run, but off-shoring is not going to become less lucrative for that reason.
A week ago, Obama also said that if tax breaks had to be given, he would rather give them to companies that created jobs in America. Once again, he is on the wrong trail. Sure, he can do so. But he should know that it will reward companies that are anyway planning to create jobs — including the same Infosyses and TCSes that are his whipping boys.
This is not to say his worries are not real. US unemployment has gone into double-digits and Obama’s approval ratings have been steadily falling. To improve his party’s standing before the November election, he has to do something. He has already announced billion-dollar plans to improve infrastructure and give the US economy a fillip. The outsourcing rhetoric is part of the overkill required for reviving his political fortunes.
The question for India really is whether to react with outrage or settle for something more muted. The answer is the latter. Outsourcing may be a political football, but it is also an economic dynamo. Kicking the ball back and forth is not going to undo the economic logic driving it all. So let’s sit tight and watch the fun.
Courtesy: DNA India