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The Corporate Tax Reform Imperative

As the world leader in networking technology that transforms how people connect, communicate and collaborate, Cisco is proud of the role we have played in creating opportunity and economic growth throughout the world.

However, here in the U.S. we are facing unique and daunting challenges that jeopardize our position as an economic leader.  We need to get Americans back to work, boost investment in the United States, increase our global competitiveness and inject certainty into our economy.

While there are many contributing factors to the challenges we face as a Nation, one area we need to address is modernizing the U.S. corporate tax system.  The last time the corporate tax code was modernized was in 1986, the same year a little start-up called Microsoft went public.  Think about how much the world has changed since then.  Our antiquated and overly complicated tax system is broken.  And it is putting American workers and businesses at a severe competitive disadvantage.  Our policies must reflect the new realities of the global marketplace

First, the U.S. has the one of the highest corporate tax rates in the world.  Our global competitors are subject to significantly lower tax rates, which give them more flexibility to invest and operate their businesses.  This comes at time when we are seeing global competition like never before.  On one side, emerging new competitors are aggressive and driving change with a low-cost and highly-skilled labor force.  On the other side, developed nations have a huge focus on exports and job creation, and a competitive tax system that supports their goals. Several of these countries – such as Germany, Japan and Canada – are lowering their corporate tax to address exactly these issues.

Second, it’s no surprise that many companies such as Cisco are growing outside of the United States. That is where the world is seeing the fastest growth. In fact, 50% of Cisco’s sales are outside the U.S.  This is the reality of doing business in a global economy – we sell in Mexico, we sell in Germany, we sell in China – and we pay taxes locally on those earnings. However if we decide to bring the foreign earnings back to the United States, we are taxed again by our government at a remarkably high rate.  Many of our global competitors do not face this same double taxation.  And the demand for technology overseas will keep growing substantially beyond our borders – in fact, IDC estimates that 71% of total information and communications technology spending will be outside the United States by 2014. That is only three years from now.

Together, these tax policies hinder investment in the U.S. and prevent American companies from growing stronger at home.  Ultimately, they negatively impact our economic growth and our competitiveness as a nation.  Unfortunately, despite political support from both sides of the aisle, long-term, comprehensive reform could take years to enact.  The U.S. economy and our workers cannot afford to wait.  We need action now to promote investment in the economy and create jobs.

That is why Cisco and other leading U.S. companies are advocating the temporary elimination of the double tax on foreign earnings.  More than $1 trillion dollars of US foreign earnings are trapped overseas.  That money would be an instant transfusion into the US economy – and this is money that’s already been printed.  These funds could be used to add jobs, boost R&D and build new facilities in this country.  Without a temporary elimination of this double tax, the money simply won’t come back to our country.

If we want to reclaim our global leadership with an economy that drives US job growth and investment, America needs to be the most attractive place in the world to headquarter a company. The world has changed dramatically since our tax system was last reformed 25 years ago. American workers will benefit if American companies can successfully compete in this new world.  And the time to act is now.

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U.S. Jobs, Innovation, Growth and Investment

With the election season behind us, as a nation it’s time we come together and quickly address the serious challenges facing the U.S. economy and American workers.  Our number-one goal must be to restore confidence in our economy and put people back to work.

As a U.S.-based multinational company, Cisco is committed to the continued economic growth and technological leadership of the United States.  Given that it is the world’s largest economy, the United States must continue to drive global economic stability through policies that create jobs, promote innovation and foster new opportunities at home and abroad.  If we don’t, we run the risk of being left behind.  Just this week, a China-based company claims to have developed the fastest supercomputer in the world. This kind of innovation has previously been a hallmark of the United States—a leadership position created by commitment and investment from both government and the private sector.  This country must have an environment where innovation and investment is encouraged and rewarded.

Currently, however, U.S. tax policy does the opposite.  Incremental tax rates as high as 35% on money made overseas discourages companies such as Cisco from bringing back these resources  and investing them at home – whether to create new jobs, boost R&D spending, or return value to shareholders.  This high taxation of repatriated foreign earnings is in marked contrast to the tax practices of almost all of the world’s major economies—Japan, Germany, United Kingdom, France, Spain, Italy, Australia, Canada, Russia, and the Netherlands, to name a few.

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A Trillion Dollar Stimulus Plan for the U.S.

Today, in the Wall Street Journal, Cisco Chairman and CEO John Chambers and Oracle President Safra Catz wrote an op-ed on the topic of repatriation of foreign earnings. Entitled, “The Overseas Profits Elephant in the Room: There’s a trillion dollars waiting to be repatriated if tax policy is right,” (subscription required) Chambers and Catz state:

“One trillion dollars is roughly the amount of earnings that American companies have in their foreign operations—and that they could repatriate to the United States. That money, in turn, could be invested in U.S. jobs, capital assets, research and development, and more.

But 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.”

There is quite a discussion on this topic on the Wall Street Journal’s website currently and, of course, we’d love to hear your opinion here as well.

By the way, Chambers and Catz also offer an idea for hiring an additional 2 million new workers as a result of allowing these foreign earnings to be repatriated.

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