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Friday, September 17, 2010

Idea to Create Jobs

Background:  I read cash rich companies like Microsoft (MSFT Charts & Quote) and Cisco (CSCO charts and quote) are BORROWING BILLIONS of dollars to pay dividends and repurchase their stock because much of their cash is overseas.  If they bring the cash back to the US to hire workers here, pay dividends or buy back their own stock, then they are taxed so it is cheaper for them to borrow the money.

Idea #1:  Why not let companies bring their cash made overseas back to the US if used to grow employment here?  That is if they grow their workforce by $1B over 5 yrs (2,000 jobs that pay $100,000 salary over 5 yrs) then they can bring back $1B tax free.  If they reduce their US employment over that 5 yrs, then they have to repay the taxes due.

Idea #2: Even simpler, since dividends are taxed, why not let companies use overseas cash to increase their dividends?  This would be great for IRAs since the dividends would eventually be taxed as ordinary income when savers take the money out.... a good thing for the IRS.

This idea would make it MORE profitable to make money overseas from jobs created in the US.

Without this change, I fear companies like Microsoft, Cisco, Intel, HPQ, etc. (links go to stock quotes and charts)  will use the cash to buy companies outside the US to grow even more outside the US.  If tax policy here remains punishing to job creators, I believe they will eventually leave the US for more tax friendly countries like Verigy (VRGY quote and charts) did after it spun off from Agilent/HP and moved to Singapore.  

FWIW, moving jobs overseas for better tax treatment and lower wages is nothing new.  When I started at Hewlett-Packard as a summer intern in 1978 we were in the process of moving final test of some volume products to Singapore.  By the time I left 20 years later, I was training experienced engineers from Singapore (on temporary visas) to do jobs I trained top engineering graduates from CAL, Stanford and MIT to do ten years before.   It is no accident US jobs moved to where companies can operate at a higher profit.  The US needs to look at how it can reverse the tide and bring jobs back to the US.

What do you think?  Post your thoughts in the Comments Section.

Update 12:40 PM PST:    Details are in comments section:
  1.  Cisco has over $30 billion outside the U.S.  John Chambers said "Easiest way to generate jobs is to bring back the money, Implore people to do that. Of Fortune 100, we may be only one that is growing headcount in the U.S. by 10%."
  2. John Chambers said  repatriation of cash, if it occurs, some will be used for job creation, some to drive up stock prices (probably via buybacks.)  Even buybacks are good for the taxpayer as they will come back to be taxed  as ordinary income when people with stock in their IRAs convert it to cash to take RMDs when they retire.


  1. From John Chambers Q&A:
    Cisco: Live From The Analyst Meeting, CFO Repeats 12%-17% LT Rev Growth Goal; CEO Chambers To Stay At Least 3-5 More Yrs (Updated)

    By Eric Savitz

    Q: What about the big cash piles that large cap companies have?

    A: We have over $30 billion outside the U.S. There are problems having the highest tax rate in the world in the U.S. I think it would be a tremendous opportunity lost not to bring back the cash, even if you tie it to job creation. Of top 20 companies in the world, we used to have 18, and now in the single digits. Easiest way to generate jobs is to bring back the money, Implore people to do that. Of Fortune 100, we may be only one that is growing headcount in the U.S. by 10%. Repatriation is something we ought to do quickly at the beginning of this calendar year.

  2. More...

    Q: On the dividend?

    A: It is right for a whole bunch of reasons. Probably will pay 25%-35% of the cash generated in the U.S.; could be at higher end of 1%-2% range if they can repatriate the cash outside the U.S.

    Q: Why not do it right now?

    A: Calderoni says they want to see how tax policy plays out, and how repatriation issue is settled. He notes that they need to invest internally, make acquisitions and buy back stock, as well as paying a dividend. But he says they will pay a dividend this fiscal year.

    Q: Do you think there will be a need for a tax holiday on repatriation in order to see large company consolidation?

    A: Chambers says they see a Y in the road coming - and hope that we can bring the cash home and create jobs. Whether you acquire for cash or stock depends on growth and P/E rations. Either is fine for small deals. Repatriation, if it occurs, some will be used for job creation, some to drive up stock prices. (Probably via buybacks)


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