Dead wrong – atleast this particular statement of Mr. Obama didn’t mean it.

Let me explain.

Among the major companies which have shipped jobs to foreign countries such as India include General Electric, Microsoft, Hewlett-Packard, Motorola, Pepsico, Honeywell and IBM.  Back in 2004, the Bush administration passed an Act called the American Job Creation Act (AJCA) under which there was a specific provision called ‘Invest in USA’. US companies could exploit this provision and repatriate profits back to the US from their offshore operations. Not BPO, KPO or any other outsourcing operations – these are ‘business operations’. What it basically meant was that, if Motorola set up a phone manufacturing facility in Taiwan, and if they made profits out of this particular plant, they could repatriate profits back to the US by paying a lower tax rate. There would be a tax break on 80% of the repatriated earnings and the rest 20% of repatriated earning would be taxed at 35% making the effective corporate tax rate on companies repatriating approximately 5.25%.

This lower tax rate encouraged various companies to utilize this provision, bring back earnings and invest in the US, thereby creating more jobs. This provision though, was meant to be a one-year tax holiday only. Republicans did try their best to extend this tax holiday and re-introduce it along with the stimulus bill, but was shot down by the Obama/Democratic administration. Obama was referring to this provision of tax breaks (the provision having already expired, Obama was just making a political point!) rather than any IT or Business Process outsourcing that our media and political establishment has raised a frenzy on.

Allen Sinai makes a compelling case in the WSJ that on average, of the repatriated funds that came back to the US, 25% of those funds for U.S. capital investment, 23% for hiring and training of U.S. employees, 14% for U.S.-based R&D, and 13% for U.S. debt reduction. Per recent studies, if this provision is introduced now, this could help bring in USD 545 billion, which we all agree would be a pretty sum to battle the crisis.

So much for the media frenzy, so much for wild discussions on different discussion boards on protectionism. Ben Bernanke, the Fed’s chairman is an authority on the Great Depression, and he more than anyone else would know that banning outsourcing is the same as erecting trade barriers, which are universally acknowledged as having worsened and prolonged the Great Depression – he would never allow that to happen in this market.

Let’s not get caught up in the frenzy in these depressing times – let’s look at facts, arguments and then come to a conclusion. The incentive to the media is to grab more eye-balls (and hence declare through a catchy line, ‘Obama is against Outsourcing’) than present rational arguments. Let’s not add fuel to the wrong fire.