The US HIRE (Halting International Relocation of Employment) Act of 2025, introduced by Ohio Senator Bernie Moreno, is a legislative proposal designed to discourage U.S. companies from outsourcing jobs to foreign countries. The bill proposes a 25% excise tax on payments made to overseas employees or entities for services that ultimately benefit American consumers.

Key Provisions of the HIRE Act:

• 25% Excise Tax: The act would impose a 25% excise tax on "outsourcing payments," defined as fees, premiums, royalties, or service charges paid to foreign entities for labor or services that benefit U.S. consumers. If a payment relates to both U.S. and international clients, the tax would apply only to the portion benefiting Americans.
• Tax Deduction Elimination: The legislation would eliminate tax deductions for these outsourcing payments.
• Domestic Workforce Fund: The resulting revenue would be directed into a newly created Domestic Workforce Fund. This fund would finance apprenticeship programs, reskilling initiatives, and workforce development projects run by the U.S. Department of Labor. Grants would also be provided to states, particularly in regions hit hardest by job losses due to outsourcing.
• Definition of "Foreign Person": The bill defines a "foreign person" as anyone who is not a U.S. resident, excluding corporations or partnerships formed under U.S. territory laws.
• Increased Penalties: The legislation proposes a dramatic increase in penalties for non-compliance, raising the monthly rate from 0.5% to 50% and removing the usual 25% cap. Companies would also be prohibited from deducting this excise tax as a business expense.
• Effective Date: If passed, the HIRE Act's provisions would apply to payments made on or after January 1, 2026.

Potential Impact on Indian IT:

The HIRE Act could significantly impact Indian IT firms, which derive a substantial portion of their revenue from U.S. clients. Prominent companies like TCS, Infosys, Wipro, HCLTech, and Tech Mahindra could be affected. The combined effect of the 25% surcharge and the loss of deductibility could raise the cost of outsourcing by nearly 46%. Analysts caution that Indian IT firms may be forced to absorb part or all of these additional expenses, putting pressure on their profit margins. Alternatively, U.S. companies could pass the extra costs onto clients, potentially driving up the price of outsourced services.

The bill's definition of "foreign person" could potentially include wages paid to non-immigrants in the U.S. as well as foreign subsidiaries of U.S. corporations, which could impact GCCs set up in India for inter-company transfers.

Arguments for and Against the HIRE Act:

• Proponents argue that the HIRE Act will protect American jobs and incentivize companies to invest in the domestic workforce. Senator Moreno has stated the bill aims to safeguard American college graduates and working-class citizens from job loss and ensure they can work and retire with dignity.
• Opponents contend that the HIRE Act could harm U.S. businesses by increasing costs and reducing their competitiveness. Some experts believe that access to large-scale, skilled, and cost-efficient talent overseas will remain essential for U.S. companies.

Challenges and Uncertainties:

The HIRE Act faces several hurdles. As the HIRE Act seeks to raise revenue, legislative procedure requires it to originate in the House of Representatives rather than the Senate. Also, the complexities of global trade and the dependence of U.S. companies on cost-effective global talent could hinder its passage. Similar proposals in the past have stalled in committee stages due to strong business lobbying.

Despite these challenges, the current protectionist climate and job-reshoring sentiment in the U.S. make the risk more credible. The HIRE Act signals rising protectionism and populist rhetoric, prompting a need for market diversification and domestic growth for Indian IT.