NEOAVATARA

Wonder how long India will celebrate Obama...

I have many Indian American friends that love Barack Obama.  Infatuated may be a better term.

Now, many are having second thoughts.

India has never been high on Mr. Obama’s list of friendly nations, for unknown reasons.  As I myself documented previously, India has been placed in a secondary status in the White House’s countries of importance.  And no major cabinet member has spent significant time in India as of yet.

Obama, who was pushing a revision of the corporate tax code, lashed out at the current US system, saying it encouraged paying ”lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.”  The Obama plan unveiled on Monday would, among other things, prohibit US firms from receiving foreign tax credits on income that is not subject to US taxes. It will also end a provision that lets the firms legally shift income from one foreign subsidiary to another, thus perpetually ducking taxes.  As a result, companies such as General Electric, Google, Intel, and Hewlett-Packard, all of which have operations in Bangalore, will lose tax credits and be forced to pony up more tax dollars to Uncle Sam.

Now, as an American I am a little schizophrenic on this issue.  As an American first, I would like to keep as many jobs here as possible.  That said, there is the simple reality that people in other countries can do certain jobs cheaper and better than we can here.  And in that respect, I wish India, and Bangalore, all the luck in the world to get as much work as they can.

The irony here is that Mr. Obama’s proposals could possibly hurt both countries.  The U.S. will not necessarily get back any of the jobs that have been previously outsourced.  It is still too expensive to move those jobs here overall.  Even worse, these tax proposals could more jobs overseas, because now you may actually benefit by having lower corporate taxes overseas, and deal with import taxes, than doing business in the United States.

Also, Mr. Obama misses a fundamental point…the reason that the jobs are going overseas is not because of taxes at all.  As the Wall Street Journal points out, corporate taxes in India are as high as 55%, much higher than in the United States.  The reason jobs move elsewhere is because the cost is less, pure and simple.  And Mr. Obama increasing the costs here at home likely will hurt job production, not help it.  Capital will fly to what ever country will provide the best business environment…and right now, that country is not the good old U.S.A.

As for India, the profit margin for companies doing IT business in India will decrease if the tax policies go into effect.  That, in turn, will certainly decrease the money available for jobs in India, and very likely will decrease jobs created in the IT sector.

Well, for you that love Barack Obama…you get what you wish for.