Barack Obama News Updates! US President Barack Obama on Thursday once again targeted outsourcing of jobs overseas by American companies, increasing the pressure on local firms in an attempt to secure some benefit ahead of the crucial November elections in his country.

Obama, speaking at a rally in Parma, Ohio, the state which banned outsourcing of work overseas by government departments, said he remained firm on ending tax breaks for American firms that sent jobs abroad.

“One of the keys to job creation is to encourage companies to invest more in the United States. But 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,” Obama said, flanked by Ohio governor Ted Strickland, who is trailing in the polls and is fighting to retain his governorship.

Obama’s party, the Democrats, faces a hugely disillusioned and angry electorate on November 2, and is widely expected to lose control of the House of Representatives. The US president has spent the last few days trying to rally his base with promises to protect jobs and spur economic growth.

His reference to ending tax breaks does not mean that US companies get tax breaks for shipping jobs overseas. Instead, the US tax code allows them to keep the income they earn overseas without incurring a tax liability.

In order to encourage more local hiring, Obama also gave a speech in January this year where he suggested a $5,000 credit for every job a company created (net new job) and an overall limit of $500,000 credit per company for availing such benefits.

Rosanne Altshuler, a Rutgers University economist specialising in international taxation, told ET in an interview earlier this year that the president could make it more difficult for firms to avoid US tax on income earned abroad by keeping it abroad.

“Obama wants to reform this part of the law (called ‘deferral’). He would make it more difficult for firms to avoid US tax on income earned abroad by keeping it abroad,” said Ms Altshuler, a former senior staff economist for President George W Bush’s advisory panel on federal tax reform.

While there is still no specific proposal elaborating how Obama plans to end the tax breaks, such measures could mean that large outsourcing customers such as GE and Citibank might have to pay certain taxes on their income from international markets, making it less attractive for customers to send IT projects to cheaper offshore locations such as India. To this end, Obama is proposing reforming the taxation of the overseas income of multinational corporations.

Under current law, firms don’t pay taxes to the US government on income earned abroad until they bring the money back to the United States, Ms Altshuler added. Many experts say that ending these tax breaks will not stop outsourcing. The economic logic of sending jobs to low-cost centres is so compelling that companies will keep doing it, they add.

“Let’s face it — companies will do whatever it takes to remain competitive, and offshoring of non-core activities is an important tool. We are already struggling to rival cheaper offshore locations in manufacturing, and sending IT projects to India will help us remain competitive,” said a senior official at one of the top US tech firms. He requested anonymity.

Experts such as Rodney Nelsestuen, senior research director at US-based TowerGroup, said while Obama’s policies could help the government reduce its unemployment costs, the companies would not just hire to get the credit, but also try and balance it with actual economic need.

“The proposal is only a part of a larger proposal that includes spending on infrastructure in the US, creating a permanent credit for R&D expenditures, and giving a 100% write off for capital improvements in the year they are made. Also, the potential to reduce tax revenue overall given that only those who would hire anyway will get the benefit is a significant concern,” Mr Nelsestuen said.

Nevertheless, the development is unwelcome and unpleasant for the $50-billion Indian outsourcing industry, which has had a hugely successful run since the millennium bug, or the Y2K problem.

More than 3 million jobs have been created and a huge infrastructure has sprung up to take care of the myriad needs and demands of the US companies. The industry has faced bad press since the Obama administration took office in January 2009 with the president himself declaring last year that he wanted jobs in Buffalo and not Bangalore.

Last month, the US Congress approved a measure to increase fees for the H1B visa applicants in order to raise money for building a fence on the US-Mexico border. About 65,000 Indians apply for H1B visas every year. The Ohio ban was also announced some time after that.

Source:http://majhiaai.com/2010/barack-obama-bashes-outsourcing-again/

THERE WILL BE no congressional action to end alleged tax breaks for sending American jobs to other countries, at least not in the near future. A bill backed by the Democratic leadership died in the Senate Tuesday, thanks to a Republican-led filibuster. But the issue is not going away. Democratic candidates plan to campaign on it in the fall election, for the same reasons that President Obama and congressional Democrats backed the legislation: They think it’s a good policy and good politics. Nothing polls better than “keeping jobs in America.”

So it’s worth examining the proposal on its merits. At the heart of the matter are tax code provisions that permit U.S. multinational corporations to deduct the cost of moving operations overseas immediately but defer U.S. taxes on money they earn overseas until they transfer the cash back to the parent company.

President Obama has proposed to attack this by disallowing the deductions until the deferred taxes are paid. The Senate bill took a slightly different tack, denying the deduction for moves that resulted in offshoring jobs previously done in America, while eliminating the deferral of tax on income that came from importing products from abroad back to the United States. The animating principle that tax rules reward “outsourcing” is the same, however.

The Senate proposal would have been extremely difficult to administer: How, exactly, would the government connect particular expenses to the export of particular jobs, or identify the revenue attributable to particular goods or services transferred? But more fundamentally, the Senate proposal, like the White House plan before it, reflects basic misconceptions about the conduct of multinational companies. In brief, there are many cases in which opening, or expanding, a subsidiary overseas can create or sustain employment in the United States. Sometimes U.S. firms make parts abroad that they ship to the United States for assembly. If Congress starts taxing the income they make by doing so, some companies will respond by shipping the assembly overseas as well. A 2008 study by economists Mihir Desai, C. Fritz Foley, and James Hines of Harvard Business School found that domestic investment by U.S. firms grows by 2.6 percent for each 10 percent increment in the companies’ investment overseas.

In other words, counterintuitive as it may seem, international capital flows are not a zero-sum game for American workers. To set tax policy as if the contrary were true is to invite retaliatory measures by other countries on behalf of their “national champions.” There is a strong case to be made for reforming U.S. corporate taxation, which may disadvantage U.S.-based businesses as compared with those operating in Europe and elsewhere abroad. The code is full of irrational loopholes and perverse incentives. But dealing with them piecemeal — much less dealing with them on the basis of politically popular misconceptions will only make matters worse.

Source:http://www.washingtonpost.com/wp-dyn/content/article/2010/09/29/AR2010092906471.html