The Global Tax Dodgers: How Big Business Keeps Money Overseas Instead of Creating Jobs at Home
Continued from previous page
A persistent promise in Barack Obama’s campaigns for the Senate in 2004 and the presidency in 2008 was that he would end tax breaks for corporations that ship jobs overseas. True to his word, in a speech in May 2009, President Obama declared: “It’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.” In June 2009, Microsoft CEO Steve Ballmer responded that an end to the overseas tax deferral would make “U.S. jobs more expensive” and that if the Obama administration insisted on changing the tax law, Microsoft would be “better off taking lots of people and moving them out of the U.S.” In September 2009, the Obama administration met with US high-tech executives and agreed to shelve the plan to end the tax deferral.
Nevertheless, in his State of the Union address on January 27, 2010, President Obama insisted that “it is time to finally slash the tax breaks for companies that ship our jobs overseas and give those tax breaks to companies that create jobs right here in the United States of America.”
This tax loophole has not yet been closed. Indeed, in October 2010, John Chambers, chairman and CEO of Cisco Systems, and Safra Catz, president of Oracle, published an op-ed in the Wall Street Journal in which they sought to counter criticism in the press that US corporations were sitting on one trillion dollars in cash instead of investing in jobs in the United States. The two high-tech executives claimed that US corporations were holding the cash in question overseas and recognized that these funds “could be invested in U.S. jobs, capital assets, research and development, and more” if US corporations had an incentive to do so. “But,” they continued, “for U.S. companies such repatriation of earnings carries a significant penalty: a federal tax of up to 35%. This means that U.S. companies can, without significant consequence, use their foreign earnings to invest in any country in the world — except here.”
Having deftly transformed an existing government tax concession to US corporations into a tax penalty on US corporations, Chambers and Catz noted that, among other things, repatriated profits could “provide needed stability for the equity markets because companies would expand their activity in mergers and acquisitions, and would pay dividends or buy back stock.” To lure the $1 trillion back to the United States, they proposed a 5% tax on repatriated profits that would yield the US government a quick $50 billion, which could then “be used to help put America back to work…[by giving] employers — large or small — a refundable tax credit for hiring previously unemployed workers (including recent graduates).” “Such a program,” they crowed (their plan having saved their companies 30% in taxes on foreign profits), “could help put more than two million Americans back to work at no cost to the government or American taxpayers. How’s that for a good idea?”
Along with other business executives, Chambers presented his “good idea” directly to President Obama at the White House on December 15, 2010. In mid-January 2011, Treasury Secretary Tim Geithner met with a dozen CFOs who pushed for an end to taxes on foreign profits on the grounds that it would make US companies more competitive internationally. In his State of the Union address on January 25, 2011, Obama mentioned innovation 11 times, but made no mention of the repeal of the tax deferral law to help finance it. Instead, he just exhorted Congress to simply the tax system: “Get rid of loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit.” This past July, in Congress, the “Gang of Six”, lobbied by the Business Roundtable, pushed for an end to the taxation of foreign profits.