Obama Speaks Out Against Offshore Outsourcing

In his acceptance of the Democratic presidential nomination last Thursday, Senator Barack Obama promised to deny tax breaks to companies that send American jobs overseas. Critics say Obama's plan needs more specifics.

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Tue, September 02, 2008

ComputerworldSen. Barack Obama (D-Ill.) attacked offshore outsourcing in his acceptance of the Democratic presidential nomination Thursday night, drawing a bead on a practice that has displaced nearly one in 10 IT workers, according to a new study.

Obama said that as president, he "will stop giving tax breaks to companies that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America."

Economists and legal advisors contacted about those comments said they are unaware of any specific tax breaks aimed at offshoring tech jobs. Instead, they said, Obama may be targeting broader tax deferment strategies, such as the ability of multinational firms to avoid taxes on profits by moving money overseas.

Joe Greco, director of California State University-Fullerton's Center for the Study of Emerging Markets, discounted the impact of tax code changes on the broader offshore trend. "Any plans for a tax code change are like trying to plug a hole in a leaky dam with your finger—to believe the U.S. government tax code promotes outsourcing is a major misconception of the fiery debate around outsourcing offshore," he said.

But Obama could have more success fighting the shift of jobs overseas through the second half of his point—by creating incentives for companies to add jobs in the U.S, said Greco. "If you want to be a magnet, you can be a magnet," he said.

Indeed, Jim Harvey, the partner and co-chair of the global technology and outsourcing practice group at Hunton & Williams LLP in New York, said state and local governments can be very active in creating incentives to retain jobs, including tying a particular number of jobs to the size of a tax break. Such incentives, he said, can make a difference for some clients. "Incentives to keep jobs on shore, targeted at the IT industry, would make a lot of sense," Harvey said.

But tax breaks to keep jobs in the U.S. don't always work. The Nielsen Co., recently gave up local tax breaks it received in Florida after it hired an India-based firm.

If Obama plans to keep giving attention to offshore outsourcing, he is hitting an issue that is having a major effect on tech workers. In what may be the largest study of its kind, involving 10,000 workers and human resources professionals across a range of occupations, researchers at the New York University Stern School of Business and Wharton School of the University of Pennsylvania found that 8 percent of IT workers in the U.S. have been displaced. The study was released last week.

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