Government // Enterprise Architecture
Commentary
10/24/2010
09:32 PM
Bob Evans
Bob Evans
Commentary
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Global CIO: Oracle And Cisco Join Forces On $1-Trillion Idea

Their new plan could create 2 million private-sector American jobs, add $50 billion to the federal treasury, and trigger new investment in the U.S.

Proving that politics makes for strange bedfellows, Cisco and Oracle have publicly pitched to President Obama a proposal that would let create 2 million new private-sector jobs at no cost to the federal government by allowing U.S. corporations to repatriate about $1 trillion in foreign earnings without incurring brutal tax rates of up to 35% that are currently keeping that money locked out of the U.S.

Cisco CEO John Chambers and Oracle president Safra Catz recently penned an op-ed piece in the Wall Street Journal saying that current U.S. tax law is spurring global corporations like theirs to hold their vast hordes of foreign earnings in their subsidiaries outside the U.S., and to invest some of those riches in almost any country in the world except the United States, where doing so would trigger massive tax bills.

Unwilling to pay those excessive U.S. tariffs when talent and opportunity abound in countries around the globe, corporations are choosing instead to pursue the best legal interests of their shareholders by keeping that trillion-dollar bounty outside of this country and pumping it into economies whose corporate tax policies are vastly more attractive than those of the United States.

From the Journal article bylined by Chambers and Catz: "The U.S. government's treatment of repatriated foreign earnings stands in marked contrast to the tax practices of almost every major developed economy, including Germany, Japan, the United Kingdom, France, Spain, Italy, Russia, Australia and Canada, to name a few.

"Companies headquartered in any of these countries can repatriate foreign earnings to their home countries at a tax rate of 0%-2%. That's because those countries realize that choking off foreign capital from their economies is decidedly against their national interests," write Chambers and Catz.

The imbalance between U.S. corporate tax policy on foreign earnings and the policies of other developed countries is so great, Chambers and Catz write, that it would border on irresponsibility for corporate executives to bring that money into the U.S. at a cost of up to 35% when so many more-attractive options exist outside this country.

"Many commentators have pointed to the large cash balances sitting on U.S. corporate books as evidence that the economy is still stalled because companies aren't spending," they write. "That analysis misses the point. Large cash balances remain on U.S. corporate books because U.S. companies can't spend their foreign-held cash in the U.S. without incurring a prohibitive tax liability.

"Especially with corporate bond rates falling below 4%, it's hard to imagine any responsible corporation repatriating foreign earnings at a combined federal and state tax rate approaching 40%," say Chambers and Catz.

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But by dropping that brutal rate to, say, 5%, Congress could trigger in this country a windfall in corporate investment in R&D, equipment purchases, new facilities, and hiring while also raising $50 billion in federal tax revenue.

As they say in New York, what's not to like? Consider this scenario:

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