by Stephanie Overby

The Problem with Schumer’s Plan to Tax Offshore Call Center Use

Jun 03, 2010

U.S. Senator Charles Schumer says he plans to propose a bill to curb the use of foreign call centers and bring call center jobs back to American shores, but the legislation could prove more costly to the government than to companies that outsource overseas.

Senator Charles Schumer (D-NY) said this week that he will introduce an anti-offshoring bill that would impose an excise tax on companies that transfer domestic customer service inquiries to foreign call centers.

Specifically, the bill would levy a 25 cent tax on every customer service call originating in the U.S. that is transferred to an agent offshore. The intended legislation would also require corporations to disclose to customers when they transmit their calls offshore and to identify the country to which the call is being routed. Additionally, Schumer’s plan would require companies to reveal in quarterly and annual reports how many customer service calls they receive and what percent are sent overseas.

By raising the cost of sending call center work offshore through a tax and introducing the burden of reporting, Schumer says the law would help to “maintain call center jobs currently in the United States” and “provide a reason for companies that have already outsourced jobs to bring them back.”

Outsourcing industry watchers say such legislation could easily pass given the current political climate. “We have been tracking legislation in this arena since 1999, and this seems to be the most politically charged environment against offshore sourcing,” says Atul Vashistha, chairman of offshore outsourcing consultancy NeoIT Advisory.

“For the anti-offshore/outsourcing politicians, it’s a given to support this,” adds Phil Fersht, founder of outsourcing analyst firm Horses for Sources.

According to Schumer’s plan, companies would have to certify annually with the Federal Trade Commission that they are in compliance with the offshore call center rules, or be subject to civil penalties. But the logistics involved in actively policing offshore call center traffic could prove much more costly to the federal government than to companies that outsource overseas.

“It would be huge,” Fersht says of the logistics, noting that there are more than 30 million businesses in the U.S. that would have to be regulated.

“The costs of setting this up and managing it would take a long, long time to recoup at 25 cents a call,” adds Fersht. “It sounds like a huge waste of public money and resources. The government would be better off investing those funds in helping U.S. business set up onshore.”

Schumer said that any money collected would be used to address the security issues involved in the use of offshore call centers, including access to personally identifying information such as bank account numbers, credit information, or medical histories, although he did not explain what security measures might be enacted with the funds.

The Impact of Schumer’s Anti-Offshoring Plan

The legislation, which Schumer has not yet introduced, could curtail some offshore call center usage. “Any additional burden, whether it be administrative or financial, threatens the offshore market,” says Vashistha. “It would be a greater burden on the high volume call centers as the financial impact would be higher. We can see this adding $2 to $5 per hour to the existing rates and making some locations unattractive for call centers.”

Having to tell customers what country they’re being transferred to when they call a toll-free customer service line could also have a chilling effect on offshoring call center work. But that requirement is more likely to dissuade businesses who’ve never previously outsourced call center work than those companies with deeply entrenched offshore call centers, says Fersht.

If anything, such a tax could encourage U.S. corporations to seek out even lower-cost call center offerings in emerging locations in Africa or South America, adds Fersht. He doesn’t think American call centers in such states as Michigan, Nebraska and North Dakota, which are already doing well, are likely to see a big boost in business as a result of potential offshore regulations.

As for the effort involved in tracking quarterly call center usage, that will, ironically, involve the least effort for those companies that outsource, as their call center vendors already provide them with such data.

Schumer, who is currently working on a highly anticipated immigration reform bill, has been a supporter of the H-1B and L-1 temporary visa programs as a way to “encourage the world’s best and brightest individuals to come to the United States and create new technologies and business that will employ countless American workers.” That said, he has also been critical of visa abuse as a means to import less-expensive labor rather than hiring American professionals.

Schumer’s targeted call center law may be more likely to see the light of day than comprehensive immigration reform this legislative session. “For those who oppose [the call center legislation] on the grounds of supporting the competitive interests of U.S. companies, most will quickly realize it’s pretty toothless,” says Fersht. Supporting the measure could be a relatively painless way for politicians to put an anti-offshore outsourcing stake in the ground even as immigration reform remains up in the air.