President Obama's first official State of the Union address is a few weeks
old, but its message to American companies that operate subsidiaries in Asia
has some questioning what direction the United States will go with technology
workers, tax incentives and H-1B visas. With an economy slowly grinding its way
out of recession and a populist air of protecting jobs for American workers,
Obama is giving Asian and American business leaders and companies something to
chew on.
In the address, Obama attempted to restate his agenda on jobs and jobs growth;
some have construed these remarks as "protectionist."
"[T]o encourage these and other businesses to stay within our borders, it
is time to finally slash the tax breaks for companies that ship our jobs
overseas and give those tax breaks to companies that create jobs right here in
the United States of America," Obama said.
What was the reaction in Asia? Well, they are not worried about the tax part.
"The whole issue about taxing companies which were shipping jobs overseas
and taking away tax breaks actually does not relate to the work that is done
out of India or other locations," Ameet Nivsarkar, vice president of trade
organization NASSCOM (National Association of Software and Services Companies),
said in The Economic Times Jan. 28.
"That is really about U.S.
subsidiaries which have set up plants overseas."
But on other subjects, NASSCOM is less than enthused.
"I think the concerns that we have [are] about indirect
protectionism," Nivsarkar said. "I don't think [the] tax break issue
is really the one which is important for us."
Obama has made comments about trying to reform loopholes in the tax code to
help increase tax revenue and thwart what he characterized as bad corporate
behavior toward U.S.-based workers—a sentiment he echoed in the State of the
Union address. From Obama's May 2009 speech:
"[E]ven as most American citizens
and businesses meet these responsibilities, there are others who are shirking
theirs. And many are aided and abetted by a broken tax system, written by well-connected
lobbyists on behalf of well-heeled interests and individuals. It's a tax code
full of corporate loopholes that makes it perfectly legal for companies to
avoid paying their fair share. It's a tax code that makes it all too easy for a
number—a small number—of individuals and companies to abuse overseas tax havens
to avoid paying any taxes at all. And it's a tax code that says you should pay
lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.
"Now, understand one of the
strengths of our economy is the global reach of our businesses. And I want to
see our companies remain the most competitive in the world. But the way to make
sure that happens is not to reward our companies for moving jobs off our shores
or transferring profits to overseas tax havens. This is something that I've
talked about again and again during the course of the campaign."
Reaction from current and former NASSCOM executives to Obama's May speech
were a mixed bag of understanding that change may be on its way, but not
ultimately believing that many large changes will hurt them. The implications
for H-1B visas were not discussed. This was the reaction of two key NASSCOM
members, from Thaindian News:
"Admitting that Obama's
protectionist measure was a matter of concern for the industry, [NASSCOM
President Som] Mittal asserted that Nasscom would study the proposal to assess
what impact it would have on outsourcing or off-shoring and do the needful if
the bill got drafted ... The US accounts for about 60 percent ($30 billion) of
the $50-billion IT export revenue from India. About 70 percent of the export
revenue is generated by Indian firms and the remaining by multinational
captives or third party vendors in the sub-continent. About endorsing Mittal's
views, former Nasscom president and Satyam board chairman Kiran Karnik said he
was skeptical about Obama's tax proposal becoming a law.
"It (tax reform bill) is unlikely to
become a law as US firms will be the hardest hit. Obama's proposal is of concern because
it's a sign of protectionism. In the recent G-20 meeting in London, world leaders said they were against
protectionism," Karnik said."
It is not clear yet whether tax code changes will happen.
Protectionism has its opponents in the United
States too, including opposition to
reforming the H-1B visa program. As HCL America President Shami Khorana pointed
out in a recent column for CNBC,
conservative think tank The Heritage Foundation does not support H-1B visa
reform and warns that reform will cause setbacks. Khorana, an American citizen
who came to the United States
40 years ago and studied at Notre Dame, had this to say about
protectionism:
"I believe that any form of
protectionism is dangerous and [in] this age of globalization, the proposal to
abolish or dramatically reduce [H-1B] visas hurts our global economy, not just America's.
Drawing from my personal and
professional experience versus a simple or biased opinion, limiting or
eliminating imported talent—whether technical or other types—will do nothing to
boost our already choppy economic situation, nor will it help to develop the
American workforce.
I fear it will do just the
opposite."
However, Obama's tax code rhetoric may not have exactly made
its way into policy, as CNN
Money/Fortune writer Jia Lynn Yang reported Feb. 8:
""We want to help the
Administration generate new jobs and expand the manufacturing base
domestically," said Intel's vice president and legal and corporate affairs
director Peter Cleveland in an email. "To do that, the President's ideas on
innovation are spot on…But some of the international tax policies create
financial strain for the company and will restrict our ability to grow the
business."
Someone seems to be listening to
Intel. Last year's budget proposed changes to the international tax code that
would've added $210 billion in taxes from multinationals, almost $100 billion
more than this year. One major change is the administration has walked away
from its proposal to override so-called "check the box rules"
relating to how a company classifies its subsidiaries for tax purposes. Critics
say the current system makes it easy for corporations to shift income from
their foreign affiliates into tax havens."
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