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Rediff News  All News  » Business » US firms fight Obama's anti-Bangalore stance

US firms fight Obama's anti-Bangalore stance

June 10, 2009 14:42 IST

Image: The US flag flies high even as Space Shuttle Discovery heads into space from the Kennedy Space Center in Cape Canaveral, Florida.
Photographs: Scott Audette/Reuters Lalit K Jha in Washington/PTI

A month after American President Barack Obama came out with 'Say no to Bangalore, yes to Buffalo' rhetoric, which now echoes in the corridors of Capitol Hill, American companies have launched a campaign against the new law that ends tax incentives to those firms which create jobs overseas.

The Technology CEO Council, a Washington-based advocacy group of US American tech-companies, has released a report which revealed that the policy to end 'tax breaks' announced by Obama would result in a job loss of as many as 2.2 million Americans.

The report commissioned by the council has been authored by Robert J Shapiro, a former Clinton administration economic official, and Aparna Mathur, a Research Fellow at the American Enterprise Institute.

US firms fight Obama's anti-Bangalore stance

Image: US President Barack Obama.
Photographs: Larry Downing/Reuters

Besides affecting jobs, investments in the US in plant, equipment and property could fall by as much as $84.2 billion. Repealing or sharply limiting deferral would not generate large tax revenues, since substantial job losses, wage cuts and lower investments would reduce tax revenues, the report said.

On May 5, Obama had announced end to years of tax incentives to those companies which create jobs overseas in places like Bangalore. Instead the incentives would now go to those creating jobs inside the United States, in places like Buffalo city, bordering Canada in upstate New York.

"We will stop letting American companies that create jobs overseas take deductions on their expenses when they do not pay any American taxes on their profits," Obama said.

US firms fight Obama's anti-Bangalore stance

Image: Indian employees at a call centre provide service support to international customers.
Photographs: Sherwin Crasto/Reuters

"We will use the savings to give tax cuts to companies that are investing in research and development here at home so that we can jumpstart job creation, foster innovation, and enhance America's competitiveness," The American President said.

Obama said he wants US firms to remain 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," he argued.

The Congress is now considering legislation that would sharply limit the "deferral" rules that protect US businesses from bearing much higher tax burdens on their earnings abroad than their foreign competitors in the same markets.

US firms fight Obama's anti-Bangalore stance

Image: A man, with a sign strapped to his back, uses a megaphone to attract the attention of potential employers.
Photographs: Mark Blinch/Reuters

"The current proposal to restrict 'deferral' would end up reducing US jobs and investment and could impair our economic recovery," said Shapiro, who has advised US President Bill Clinton and British prime ministers Tony Blair and Gordon Brown as well as other leaders and private companies.

"The Obama administration deserves credit for many initiatives to promote investment and innovation," said Bruce Mehlman, executive director of the TCC, a group made up of high-tech CEOs focused on policies that strengthen American competitiveness.

"But we cannot expect to lead the world in high-tech by marrying the world's best innovation infrastructure with the world's most confiscatory corporate tax structure," Mehlman argued.

US firms fight Obama's anti-Bangalore stance

Image: A view of Bhagmane Tech Park in Bangalore.
Photographs: Stringer/Reuters

The report suggested that the administration and the Congress should conduct a serious review of the tax code and identify broad reforms that take account of the actual dynamics of the global economy and the need to support the integrated operations and international competitiveness of American companies.

Meanwhile, The Hill - a newspaper from the Capitol - reported that these companies have intensified their lobbying against such a tax provision among the US lawmakers.

"On June 5, about a half-dozen tech trade associations discussed strategy for stopping a tax hike on multinational corporations, which would come if the Obama administration succeeds in changing a law that allows companies to defer taxes on overseas revenue of their subsidiaries," the report said.

US firms fight Obama's anti-Bangalore stance

Image: A man participates in a rally as part of national Tax Day in Lafayette Park across from the White House in Washington.
Photographs: Jim Young/Reuters

This week, at least three tech trade associations are flying in executives from their member companies for meetings with lawmakers and White House aides, the newspaper said, adding that they will lobby against the proposal in those meetings.

The Information Technology Industry Council, TechAmerica and the Semiconductor Industry Association are coordinating the visits, it said.