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Obama's Tax Plan Raises High-Tech Hackles

Obama's Tax Plan Raises High-Tech Hackles

Michael Liedtke / Associated Press

May 05, 2009

SAN FRANCISCO – President Barack Obama’s plan to impose U.S. taxes on corporate America’s overseas profits threatens to open a big crater in the financial statements of technology companies.

While additional taxes are rarely popular, Obama’s decision to go after corporate earnings outside the United States is a particularly prickly subject for technology executives because the industry has been steadily boosting its overseas sales amid rising demand for its gadgetry and services.

If Obama’s proposal becomes law, the hard-hit companies would include tech bellwethers like Hewlett-Packard Co., IBM Corp., Cisco Systems Inc., Microsoft Corp. and Google Inc. Each of those companies realized a benefit of more than $1 billion from lower foreign tax rates in their most recent fiscal years – an advantage that could lost if Obama is able to change the rules.

“It would be like an earthquake for high tech,” said Carl Guardino, chief executive of Silicon Valley Leadership Group, an industry trade association. “On a Richter scale of 1 to 10, this would be a 12.”

Collectively, HP, IBM, Cisco, Microsoft and Google lowered their tax bills by a combined $7.4 billion in their last fiscal years by taking advantage of lower tax rates outside the United States, according to an analysis by The Associated Press.

Through the years, these five tax companies have avoided U.S. income taxes and foreign withholding taxes on a combined $72 billion in undistributed earnings from their foreign operations.

While Obama’s proposal might not tax all the money U.S. companies keep overseas, it apparently would target a big chunk. Obama estimated his plan would raise a total of $210 billion, or an average of about $21 billion annually, over a 10-year period.

By reinvesting their earnings overseas, U.S. companies insulate themselves from much higher tax rates had the money been made in their home country.

Google, for instance, would have been hit with an effective tax rate of 45.2 percent instead of 27.8 percent last year if it hadn’t been able to capitalize on lower rates overseas, according to the Mountain View-based company’s annual report. Without the lower foreign rates, Google’s 2008 tax bill would have been $1.02 billion higher. Google’s income before taxes totaled $5.85 billion last year.

Obama has been strongly supported so far by Google CEO Eric Schmidt, who campaigned for the president last year and has subsequently served as a technology adviser.


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    Buster78127

    6 months ago

    2 comments

    Companies need to pay their share of taxes, instead of finding loopholes to get around it. This has been going on for too many years the "wealthy and large Corp's" find ways to stash their profits while I and other Americans have to foot the bill, so yes I am in favor of taxing their overseas profits. If a company does business in the US their profits should be taxed no matter were they come from. The government taxes our income despite the source why should it be any different for the wealthy or corporations?
    There are people collecting unemployment benefits at a fraction of what they were earning. They have to pay taxes, why is that? These people are the ones in most need of tax relief not the corporations or the CEO’s wearing their $8000.00 suites that have more money than God does.
    A flat tax rate for EVERYONE no exceptions, including companies based or doing biasness in the US.

    We have allowed both the government and the corporate world to get too big; this country was founded on the bases of "By the people and for the people".
    The problem today is we as Americans have grown accustom to sitting around watching the world go by and thinking that someone else will fix the problem, we are pathetic.

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    chrismarois

    6 months ago

    8 comments

    archenstone...that was a lot of typing to say not very much...wow, just like an Obama speach. The "debt" you are referring to did exist before Obama, bvut in the short while he has been in office has exploded. He has spent more money in deficit then any other president. Not only that but his policies are all very weak and will do nothing to help our economy grow. The answer to a failing economy is NOT to tax business more. He is just taking money from the successful and giving to away to companies that drove themselves nto the ground. We call that socialism...redistributing the wealth from the successful to the no successful. We need to oppose this becuase it take all incentive away from people to work hard and get education. I know that more and more I wish I had the lack of moral character that would allow me to be a welfare living slob, but alas I do not, and it is my hard work that is going to be paying for the high school drop outs. Omaba will go down as Amarica biggest mistake, and hopefully all his policys that he is forcing through a very favorable congress will be overturned on 1/21/2012. I just hope that America can survive him till then.

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    themigrant

    6 months ago

    18 comments

    WTF did he just say?

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    archenstone

    6 months ago

    2 comments

    "We have to remember something; in order to make money, you must spend money. In the Government's case though....they are in debt...a debt that came from the prior individuals holding positions of power. Right now, any change we make is going to have a big impact on that. There are also so many variables in business and economy though that it can be hard to accurately judge the outcome of some decisions. America should never have allowed a way in the legal system for companies to get tax exemptions for job export. I think enough people have already agreed on that here. Its not just taxes that determine the jib locations though... Why would I pay an American 6.50-9.50 per hour to make shoes when I can hire a bunch of 12yr old Asian children to do the same job 12 hours a day at about 1.20 per day /and/....not pay benefits? Of course, I could say I wouldn't do it because its morally wrong...but businesses are looking at profit potential. The tax exemptions only made the idea that much sweeter. Plus take in account that any labor/repairs in most chosen countries will be exponentially cheaper as well....and that material creation and processing would be cheaper. Personally, if Obama wants to try and help from a tax perspective...why not swap the 27%-48% tax cost? Make America the 27 and others the 48. Even at that though....would it still be cheaper for companies to hire American workers? The cost of living is terrible and requires people to find work better than minimum wage. Then there's the fact that many Americans demand benefits like health care, PTO, vacation pay, gas rebates....what ever little things each company does to make work attractive to people....like Night shift differential. I'm not saying Americans should accept dirt poor wages....we barely make it here as it is...I'm just looking at other niceties many of us take for granted that jack company costs up. Sure, why shouldn't we get a week off every quarter year when some CEO is relaxing in a personal resort sipping brandy? Truth is though...that CEO got there for a reason....whether it was his management skills, negotiation, strategy or plain dumb luck. And yes, its likely that person didn't play fair.... but as the Japanese say "Business is War" America doesn't treat it as such in public view...but it still is. For America to survive we need businesses to stay here and work....I don't see any major companies completely cutting off their American citizenship over taxes... Other countries have their own business policies that can be completely brutal. Things here will change for the better if; You encourage business growth in states Forcibly expunge any illegal residents you find/ make it harder for illegal immigration work on more efficient means of expenditure and conservation of resources. Begin to reestablish a true middle class in the USA Review the current jail/correctional center costs and cut them down *Seriously, do you want your power shut off for non pay when Inmates enjoy free A/C and internet?* There tons of more things we can look at for way to help the economy and they dont need to be done at once. They can be done over a short period of time...short as in the next few years. The Government right now has to have taxes to generate income...else we will never be able to alleviate our debt with China and who knows who else. Till the bill gets through its final stages I say don't fret. Either way, companies need to pay tax. We can adjust the tax situation to work in America's benefit"

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    maestrodata

    6 months ago

    18 comments

    If the IRS sent you a notice that said, "hey, i want your offshore income to be taxed, and here's what you owe", what do you think you would do? Pay the tax? Hardly. It'll end up in tax court, or the company will find other loopholes to get around it. This is how human nature works.

    Better use of the governments' time would be to LOWER taxes across the board. There's no reason to leave the US if the taxes are lowest here, and that means bigger profits, which is the point why these companies left in the first place. Either raise the bridge or lower the water. Companies are voting with their feet and taking a tax break with or without your consent. They are also deciding that even loyalty to their own countrymen is on the table if it will mean more profit. Far easier to lower the taxes and the burden. Then, YOU get to keep your job, the company reports HUGE profits, and everybody gets to eat.

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    axeplaya

    6 months ago

    2 comments

    Look these companies have blossomed at the expense of paying their fair share of the taxes from those good times. That is the first thing all these folks start saying when we have to ask them to pay more, "that's going to cost jobs", well the first jobs to go should be at the top not at the bottom. The first ones on the list should be the CEO's of Cisco, HP, IBM, and all the other companies that are complaining..

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    bleakfuture

    6 months ago

    6 comments

    Call it anti-globalization, but US should have more job openings in US than overseas. Instead of Obama taxing their overseas profit (which the big corps would work a way around anyway), Obama should lower taxes for the big corps to setup shops in different states of the US to cover the unemployment issues in all states at one shot. I don't like this proposal by Obama as it sounds purely on a monetary basis and not on a long term job-creation basis.

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    Sin

    6 months ago

    2 comments

    Your article stinks! You make it sound like Big Companies like HP and Microsoft should be exempt
    from paying US Tax. You also do not mention how this equates to US job loss. Companies setting up in other Countries whose only intention is getting cheap labor.
    -Mike

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    Gordo1

    6 months ago

    2 comments

    I've been a die hard Republican for years and I fully support Obama on this. There is a lot I don't agree with him on but I believe he has this right. We are transferring millions of good paying jobs overseas and soon we'll be a third world country if we don't stop this. I've been an IT Director and worked closely with CEOs, presidents, CFOs, etc and I'm astonished at how greedy these people generally are and how little they care about their workers. The mentality I've observed is: let's cut costs at all costs so the top 2% of the company can make as much money as possible in the short-term. Let's not even worry about the long-term repercussions of the things we're doing.

    I know several people who work at the big IT consulting firms. They've told me about recent layoffs in the US that were caused by moving these jobs overseas. Take a look at the jobs listed on the big consulting firms sites and see where they have job openings - not many in the US, mostly in India and China.

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    slamb1965

    6 months ago

    2 comments

    Coming from a community where i watched people loose there jobs as manufacturers set up shop in other countries to increase their profits, I agree with the Idea. If it is more economical to manufacture here at home rather than outsourcing, jobs will be created. What is better inflation with employment, or unemployment.

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    habott

    6 months ago

    2 comments

    Corporations do not pay taxes, their customers however do.

    If a new tax on corporate profits is implemented one of two things occurs. 1. The company raises the price of its products or services to offset the increase. 2. The company cuts expenses to protect its profit.

    In either of these situations the consumer is the one that ultimately paysin higher prices or in lost jobs.

    Corporations are not crooks they just use the laws they bought and paid for to their advantage. And who did they pay, the same people you all seem to expect to correct this situation.

    Talk about dreaming.

  • Photo_user_blank_big

    jimlhorn

    6 months ago

    2 comments

    "Hey guys I don't believe you all get it, this is not about companies making a profit, no not at all, this is about Obama destroying capitalist. Remember what he say when he was campaigning.... 1. We should become citizens of the world. 2. We should promote world welfare 3. Take it from the rich greedy and give it to the poor needy. 4. It's time for a new direction in America, difference from where we came from Yes Obama said these things, now does this sound like a leader that's concern about his people? "

  • Photo_user_blank_big

    top

    6 months ago

    2 comments

    I can't seem to work up any tears over this. The money they're making off what amounts to slave labor should be taxed. They should bring the jobs back here, stop paying the lobbyists millions every years and enjoy the tax credits that Obama wants to offer them.

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    themigrant

    6 months ago

    18 comments

    Taxing the crooks is just chasing the wind. The damage is done.

    As a nation we cannot delude ourselves and focus on the symptom and not the problem. The problems is not the participants, the problem is how the rules are legally constructed. Change the rules, change the game and everybody can win. Make it fair and equitable and everybody can get a piece of the pie.

    Better to give real incentives to be HERE rather than somewhere else.

    The problem with blame is that it begets more blame which begets more blame and does not solve the problem. Fix the problem. Corporate America voted with their feet. President Obama needs to do the unthinkable and get rid of income taxes altogether. Money will circulate, and the patient lives. Otherwise you're sucking blood from a corpse. It's a simple matter of circulation.

    When plants lack water they die. It's time for rain.

  • Photo_user_blank_big

    PRguy10466

    6 months ago

    2 comments

    excellent idea to tax these crooks......these companies are not only cheating the U.S.A out of taxes but shipping our jobs and technology out of the country how have they gotten away with this? However as a reward for bring those jobs back..........they should get a lower tax rate here in the USA......as long as they are providing jobs

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