Cisco Blogs

The Corporate Tax Reform Imperative

March 28, 2011 - 5 Comments

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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  1. Hi Blair,

    You state:

    “These funds COULD BE USED to add jobs, boost R&D and build new facilities in this country.”

    Could be used?

    I mean, during Cisco’s Fiscal Year 2010, a whopping 75% of Cisco’s new job creations were in locations outside the United States.

    Blair, please explain how YOU and Cisco have even a single ounce of credibility!

    For example, Cisco’s Q2’FY11 effective U.S. tax rate was 12.1%

    Ireland’s corporate tax rate is 12.5%

    Finally, according to Cisco’s Form 10-Q filed on February 23, 2011:

    “As of January 29, 2011, the Company had $2.8 billion of unrecognized tax benefits, of which $2.4 billion, if recognized, would favorably impact the effective tax rate.”

    Meanwhile, Cisco complains that Federal Government spending cutbacks are hurting Cisco’s sales.

    I mean, please explain yourself!


    Brad Reese

  2. This is a little hard to swallow when GE just got a REFUND back from the IRS of 4.1 billion dollars after paying NO TAXES whatsoever on the 26 billion they made in profits… Corporations really have it rough these days.

  3. I agree, both Canada and US should change their current tax procedure. Stop being so greedy and share.

  4. Blair, thank you for the insightful look into global corporate taxation.

    What if Cisco performed an acquisition of a German, or Chinese company with “unrealized” gains? Is that tax deductible in the US, what about locally?

    I would assume it is deductible in both countries, but would require a 15 year incremental deduction period.

    I guess my real question is, how are companies like Cisco, Western Digital, Apple and others spending their foreign profits to avoid corporate taxation here in the US ?

    There are large pools of money being reported as earnings, driving stock prices up, however those reported earnings are not showing the taxes looming down the road from both foreign government tax breaks or US corporate tax.

    Your thoughts?

  5. I watched the 60 minutes report last night and I debated this issue with an individual on your facebook page. He claims that in 2004 corporations were given a break tax wise and that corporations did not utilize that break to create jobs. I am thinking that if this is true, the corporations did not create US jobs because the supposed break was only temporary. Am I on the right path?