Obama proposes tax on forex earnings to discourage outsourcing

Stepping up his tirade against outsourcing in the election-year, US President Barack Obama has proposed to establish a new minimum tax on foreign earnings to discourage large US firms from shipping jobs to countries like India.

The proposed move would make it a bit tough for US multinationals to ship jobs overseas and will give incentives to those who bring operations back into the US. Obama's proposal is part of a larger tax plan that is central to his re-election strategy at a time when thousands of Americans are jobless.

The Treasury Department said that the US business tax system does too little to encourage job creation and investment in the US and creates too many opportunities that encourage shifting production and profits overseas.

Obama is also proposing that companies will no longer be allowed to claim tax deductions for moving their operations abroad. At the same time, to help bring jobs home, the President is proposing to give a 20 per cent income tax credit for the expenses of moving operations back into the United States. In a statement, Obama said the current corporate tax system is outdated, unfair, and inefficient.

"It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America's small businesses to spend countless hours and dollars filing their taxes," he said adding that this needs to change.

He said the tax system should not give companies an incentive to locate production overseas or engage in accounting games to shift profits abroad, eroding the US tax base. "Introducing the principle of a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates," it said.