Obama’s tax-code will have reverse effect: accelerate the flow of jobs overseas

Analysts and tax experts find federal tax-code changes proposed by President Barack Obama to be ineffective.

The president had proposed tax changes, which must yet be approved by Congress, that would affect IT vendors running their business overseas by disallowing deductions for various offshore expenses, including payroll, stated Alan Appel, a tax attorney at Bryan Cave LLP in New York. 

On the other hand, Peter Bendor-Samuel, CEO of Everest Group, an outsourcing consultancy in Dallas, noted that the major motivation for foreign IT vendors to come to the US is the huge gap between salaries in the U.S. and those in many other countries. Siddharth Pai, a partner at outsourcing consultancy Technology Partners International in Houston, added that IT vendors established software and services operations in countries like India, as it was easier to find talented technical workers in sufficient numbers there, due to India having comparatively younger population. Obama did not address the wage gap in his proposal.

Sang Kim, a partner in the international tax practice in the East Palo Alto, Calif., office of law firm DLA Piper, warned that the tax code changes could accelerate the flow of jobs overseas. 

India's National Association of Software and Service Companies stated if the proposal was approved U.S. businesses with global operations would have a harder time competing with their European and Japanese rivals.

It should be noted that currently, several top U.S. IT vendors, including Cisco, Dell, IBM, Hewlett-Packard and Microsoft, run software development and services subsidiaries in India.