Trump’s Offshore Tax Threat, Visa Stance, May Squeeze Tech’s Labor Market


 

IT offshire

If a company fills a job overseas because it can’t fill it here, should it be penalized? With 35-percent tax?

Tech businesses like IBM and Hewlett-Packard Enterprises that are faced with a dearth of U.S. engineering talent are at a loss for how to interpret President-elect Donald Trump’s threat to impose a 35-percent tax on products from companies that outsource operations. Trump issued his tax-wrath warning Dec. 4 in a series of early-morning tweets.

Trump’s shifting stances on whether to restrict highly-skilled work visas add to the high-tech industry’s concern about a skilled-labor squeeze.

“How do you try to manage these two things at the same time: whether, on one hand, you think the work cannot go abroad, but you really don’t have the skill sets to do them here?’” Anurag Rana, a software and IT services analyst at Bloomberg Intelligence, told Bloomberg BNA.

The outsourcing tax would be aimed at “any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its products back into the U.S.,” according to Trump’s tweets.

It’s unclear how Trump’s tax would hit some tech companies, many of whom create intangible software and services and already have substantial workforces in emerging markets like India, China and the Philippines. These companies are under pressure to outsource even more labor, Rana said.

Universities are graduating more engineers in developing countries, while the U.S. tech industry is scrounging for talent, Rana told Bloomberg BNA. The unemployment rate in the information technology industry has averaged about 2.7 percent, nearly half that of U.S. overall unemployment for the last four quarters, Rana said.

Cost is also a motivator: a full-time IT employee in the U.S. costs over seven times as much as one in India, according to data Rana cited from Everest Group, a research firm.

“The rate of offshore labor continues to rise as IT services companies shift work to lower-cost regions in order to reduce expenses,” Rana wrote in a Nov. 7 note.

Tech companies thinking about importing computer science talent must also grapple with uncertainty surrounding Trump’s immigration policies. The president-elect’s stance on H-1B visas for highly-skilled workers – a program the tech industry has long pushed for expanding – oscillated greatly during his campaign.

It’s even unclear whether Trump thinks there’s a shortage of STEM (science, technology, engineering and mathematics) workers. In August, his campaign website said the U.S. graduates “two times more Americans with STEM degrees each year than find STEM jobs.” That language has since been removed.