Is Barack Obama right about Bangalore?

Before anyone in India gets hot under the collar about US President Barack Obama's tax proposals, because they might seem targeted at job creation in 'Bangalore,' it is important to understand what he is trying to do. For, on any rational basis, it is hard to be critical.

American companies that invest abroad have been tax-exempt on the profits from such businesses until they bring the profits back into the US; however, they have been allowed to claim a set-off on the expenses related to such investment.

This has been an open invitation to invest overseas and not in the home market, especially if the money is routed through tax havens so that the firms pay no tax on their profits anywhere. Mr Obama has called this a 'scam,' a term to which American businessmen have taken umbrage, but it is hard to think of it in any other terms.

The figures trotted out, showing that effective tax rates on such investments have been in the 2-3 percentage points range, support the president's drive to raise the effective level of tax on such corporate activity, at a time when he is running a gigantic deficit and needs money for other programmes.