OFFSHORING Fear for public coffers emerges

One in nine U.S. jobs is atrisk of being sent overseas, economist says.
SAN JOSE, Calif. (AP) -- 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 nation's 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.
Potential decline
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.
Cynthia Kroll, senior regional economist at the University of California, Berkeley, said offshoring could jeopardize U.S. dominance in emerging fields such as genetics and nanotechnology. She estimates that about one in nine jobs nationwide could be vulnerable.
"If [research and development] is coming out of India, will the next wave of growth bypass us entirely?" Kroll said.
Kerry's plan
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.
Steve Schmidt, 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.
Although outsourcing has become campaign fodder, it's unclear whether legislation or tax changes could stem the job exodus.
Low labor cost
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.
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 Social Security.
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.
"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.
White collar pain
But even staunch defenders of offshoring acknowledge that white-collar workers are hurting. The Information Technology Association of America reported in a study last month that offshoring has eliminated 104,000 U.S. tech jobs.
ITAA president 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.
Charles Burch, 51, who has been a computer programmer for AT & amp;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 r & eacute;sum & eacute;s 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.
"We're going back to the 1930s, when we had multiple families living together because times were so tight," said the resident of Lawrenceville, Ga.
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