Obama’s Outsourcing Policy is severely criticized by WSJ and LA Times

NEW YORK - President Barack Obama’s proposal to make tax changes to deter outsourcing jobs to, say, Bangalore is ‘antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue’, the Wall Street Journal argued Tuesday, while the Los Angeles Times termed it populist . The president Monday said the US tax system is such ‘that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.’

That looks like a great argument for lowering taxes on the firms creating jobs in Buffalo, but that is not what Obama has in mind, the Journal noted in an editorial ‘Obama’s Global Tax Raid’.

‘Set aside that India is a poor example to make Mr. Obama’s point, since its corporate tax rate on foreign-owned companies can be as high as 55 percent. The president’s argument is that US tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad. This, he claims, creates a perverse incentive for companies to ’ship jobs overseas’ and reduces investment and job creation in the US.’

Obama’s right, except that his proposals would only compound the problem, the Journal said.

‘His plan would limit the tax deferral on income earned abroad by tightening the rules, limiting allowable deductions and restricting eligibility for foreign-tax credits. This ’solution’ is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts.’

The explicit goal of Obama’s tax reform plan is to reduce the incentive for American companies to invest abroad, which he derisively calls ’shipping jobs overseas’.

‘Foreign companies may relish the loss of US corporate competitiveness that his proposal will bring in the short term. But in the long term, reducing US investment globally will hurt everyone. And that investment is a two-way street…,’ the editorial said.

The Los Angeles Times too criticised Obama’s remarks. ‘We’re all for closing loopholes and ending tax shelters that enable the wealthy to hide income. But we’re not convinced that changing tax law can stop corporations from steering jobs and capital to countries with the lowest costs,’ the Times said in an editorial comment.

‘Obama’s proposal, however, is more about populism than effective tax reform,’ was its conclusion.