Smith Faculty Opinion Article
The 30 Seconds Outlook
December 1, 2010
“Fear of taxation prevents U.S. companies from bringing
in some of the $1 trillion-plus held overseas that could help fuel an
economic rebound.”
— Eric Savitz, Barron’s, September 18, 2020
The unintended consequences of government regulation again raises its head in
taxes imposed on firms that repatriate cash from foreign holdings. Repatriated
cash is taxed on the difference between the low tax rates in foreign countries
and the higher rates in the U.S. The potential consequences are revealed in
conversation between Barron’s Eric Savitz and Cisco CEO John Chambers.
“Chambers asserted that Cisco Is piling up so much cash overseas that it is
rapidly coming to a point where it will need to, well, do something with the
dough. If the rules let it economically bring the money into the country with a
relatively modest penalty—he’d like a low-single-digit percentage rate—Chambers
said he’d repatriate the whole $30 billion, which could then be used to pay a
bigger dividend, buy back more stock, make U.S. acquisitions and hire more staff
in the U.S. . . ..
In his comments Chambers made a thinly veiled threat: If Washington doesn’t
change the rules, Cisco will have to invest the cash elsewhere. In short,
instead of hiring engineers in Santa Clara County and buying U.S.-based rivals,
he’d more likely hire staff in Norway and Taiwan, and purchase companies based
in Europe and Asia . . ..
For one thing, he vows that Cisco would boost hiring here by 10% if could
efficiently bring the cash home. . . . Under the current regulations, it simply
makes no financial sense to build U.S. businesses, acquire American companies
and hire U.S. employees with overseas cash.”
Will Washington listen? More likely the Senate will continue to see this as a
tax avoidance scheme.
John A. Haslem
