Barack Obama’s rhetoric hits a road block

US President Barack Obama and the Democratic Party have failed to put through a legislation which would force US companies to pay taxes on profits they earn overseas.

The Democrats needed 60 votes in the Senate with a strength of 100 to avoid debate but they could only muster 53 in support of the bill and 45 against. As of now, American companies did not have to pay taxes on profits earned abroad until the money was repatriated to the US. The companies obviously delayed repatriation. Obama wanted to remove the facility of deferring tax payments.

The bill’s title, ‘Creating American Jobs and Offshoring Act’, had obvious political overtones. That is why the senate Republican leader Mitch McConnell rightly described the bill as a political exercise to impress people in an election year.

Obama has been railing against American companies taking jobs from Buffalo to Bangalore. It served as useful political rhetoric but made little economic sense at a time when the US has been going through a severe bout of economic recession and it is yet to come out of it despite the fact that officially the recession has been declared to be over. It is true that there have been loss of jobs on a large scale. But this was mainly in the financial, housing and manufacturing sectors and there is no connection with the outsourcing of jobs in the IT sector.

The Democrats made the tenuous connection and Obama found it useful as well.

The Republicans, despite their ‘Tea Party’ frenzy, have maintained a sensible stance on the issue of outsourcing. Even during the first term of President George W Bush, his administration members, including the then secretary of state Colin Powell, felt that outsourcing did not drain the American economy but as a matter of fact it strengthened it. They saw it as another way of diversifying the home economy.

It is indeed ironical that the ‘liberal’ Democrats should be playing on the sentiment of economic xenophobia and the ‘conservative’ Republicans displaying an uncanny insight into the changing contours of the emerging global economy.

This is of course not the end of the story. The Democrats could still muster the numbers and push the bill through. But it may be unlikely because the congressional elections in November could further weaken the Democratic numbers in the House of Representatives and the Senate.

Whatever the political temptations, American leaders will have to confront the fact that America’s economic troubles cannot be traced to jobs being created in India.