Job migration draining public
Billions in revenue may be lost in coming years
RACHEL KONRAD;The Associated Press: April 8, 2004
Calif. -As U.S. companies shift jobs to low-paid workers in developing nations,
a growing number of economists and politicians worry that offshore outsourcing
could damage the nations fiscal health by draining tax coffers.
Although. proponents of offshoring dismiss such concerns as far-fetched or
naive, some tax experts say the migration of lucrative technology jobs to India
and China is shrinking U.S. employee tax contributions and could exacerbate
state budget shortfalls. Others say offshoring could erode already-strapped
Social Security, Medicare, workers compensation and other payroll-deduction
funds more quickly than anticipated.
Few researchers have studied
offshoring's potential drain on public coffers.
But up to one-quarter
of lost wages translate to lost tax revenues, by conventional accounting
methods. So if 3.3 million white-collar jobs and $136 billion in wages move
overseas by 2015 as Forrester Research predicts, that means federal, state and
local tax receipts could decline as much as $34 billion.
"Here's the big reason why tax
revenues are declining: All these jobs are leaving the country," said
John McGowan, professor of accounting at Saint Louis University. “We need to start talking about this problem and
not just blithely saying, ‘Free trade is the solution' just because it boosts
corporate profits and Wall Street likes it."
senior regional economist at the University of California-Berkeley, said
off-shoring could jeopardize U.S. dominance in emerging fields such as genetics
and nanotechnology. She estimates that about one in nine jobs nationwide - one
in six in Silicon Valley could be vulnerable.
"If (research and
development) is coming out of India, will the next wave of growth bypass us
entirely?" Kroll said. “We need to pay attention to what India and China and
these other countries are doing to get these new rounds of
Democratic presidential candidate John Kerry is calling
for a 5 percent corporate tax cut and changes to federal funding eligibility so
software engineers could get retraining grants that are now reserved for
blue-collar workers. Roger Altman, Kerry's senior economic adviser, said a
national health care program would trim business costs, and tax credits for new
jobs would keep positions from emigrating.
“The idea that we can't
compete against India because of India's low wages - that's a myth" Altman said.
"We need to make this country more competitive. That comes down to making
employers more competitive so they're not under the same pressure to move jobs
President Bush signed a February economic report stating
that offshoring jobs "makes sense." Gregory Mankiw, chairman of the president's
Council of Economic, Advisers, and Treasury Secretary John Snow have drawn
criticism from outsourced workers for similar comments.
spokesman for the Bush--Cheney re-election, campaign, said the president favors
creating jobs by lowering corporate taxes and energy costs, opening foreign
markets to American products and reducing litigation costs for businesses. He
called Kerry's proposals to stem off-shoring "obstructionist."
Although outsourcing has become campaign fodder, it's unclear whether
legislation or tax changes could stem the job exodus.
Indian computer programmers earn
roughly one-sixth the $61,000 U.S. average, and Chinese programmers earn even
less. Given the disproportionately low labor costs abroad, tinkering with
tax codes won't save many jobs, said Timothy McCormally executive director of
the Tax Executives Institute, a trade group for tax experts.
people who are now in Bombay or Bangalore instead of Berkeley or Boston are not
paying taxes to Uncle Sam, and they're not buying items here, so there's a
cascading effect," McConnally said. "But if you're looking for a magic bullet
for keeping jobs in the U.S., history teaches you that it's not going to be
Proponents of offshoring say the 35 percent tax on corporate
profits - fattened by outsourcing work to low-paid foreigners - would compensate
for lower payroll deductions, though taxes on profits don't get siphoned into
They insist outsourced workers will find new jobs.
They also say that even if salaries are lower, tax receipt shortfalls wouldn't
come close to the $34 billion worst-case scenario, based on standard payroll
deductions and Forrester Research estimates, which some economists argue
overstates the extent of offishoring.
It's pretty clear that even when
people are temporarily dislocated by outsourcing, they find employment
elsewhere, get back on the payroll and pay taxes again," said Scott Hodge,
president of the Tax Foundation, a research group. "On the individual level,
outsourcing causes extreme, painful events. At the macroeconomic level - it
sounds cold, but the economy chums all the time this way."
two dozen states are considering proposals to ban offshore in of government
contracts. Silicon Valley executives are urging politicians to avoid such
But even staunch defenders of off-shoring acknowledge
that white-collar workers are hurting. The Information Technology Association of
America, which represents 500 companies, reported in a study last month that
offshoring has eliminated 104,000 U.S. tech jobs.
Harris Miller wants to expand Trade Adjustment Assistance programs, which began
in 1962 for laid-off factory workers, to include financial services, call center
and other white-collar workers - similar to Kerry's proposal. Computer
programmers, administrative assistants and other service employees account for
two-thirds of U.S. workers.
"We've lost track of the 35- to
40-year-old white-collar person who needs to broaden his or her skill set,"
Miller said. "They've become the forgotten middle, and they need some
Charles Burch, 51, who has been a computer programmer for
AT&T Corp. and Bell Labs, said he'd be quick to sign up a refresher course,
though he's unsure it would help. He's been burning through retirement savings
and has sent out more than 1,000 resumes since 2002, when an Atlanta consulting
firm terminated his $83,500-per-year-position.
His wife, who works for
life sciences giant MDS Laboratories Inc., recently received notice that her
position would be terminated within two months. His son got a pink slip from
General Motors Corp. six months ago.
"Were going back to, the 1930s,
when we had multiple families living together because times were so tight," said
the resident of Lawrenceville, Ga. "I'm not sure these corporate
executives understand the true costs of outsourcing - no one's thinking about
that, just the bottom line."