Some of North Carolina's biggest corporations are pushing for a change in U.S. tax law that would allow them to spend foreign earnings in this country without paying the U.S. corporate tax rate of 35 percent on those earnings.
Duke Energy and Cisco Systems are among a group of multinational companies that say a temporary tax break for businesses could trigger a $1 trillion boost to this nation's economy in capital investment for construction, research and hiring. That's the estimate of the earnings currently held in foreign accounts.
Nearly two dozen companies, heavily tilted toward high-tech and pharmaceuticals, last week formed a coalition to build public support and political backing for a temporary tax break. Other members of the group that have a presence in North Carolina include EMC, Google, Microsoft, Pfizer and Qualcomm.
Critics of the proposal say companies have other plans for the money: rewarding their own shareholders.
Charlotte-based Duke, with 7,700 employees in North Carolina, is sitting on $1.2 billion in foreign earnings, largely made from its energy operations in South America and Central America. Duke wants to spend that money in North Carolina and other states on nuclear plants, smart grids and other costly projects, company spokesman Tom Williams said.
"From a business standpoint we want to be able to move money around and allocate it in a way to serve the best interests of our shareholders," Williams said.
Cisco CEO John Chambers has been working the issue for months, long before the coalition, known as Win America, was established. In October, The Wall Street Journal published Chambers' op-ed urging a temporary tax rate cut to 5 percent.
On Sunday, Chambers discussed the tax idea on "60 Minutes," noting that Cisco has nearly $40 billion in cash reserves overseas, much of it ready to be spent in this country. Cisco, the world's largest maker of computer networking equipment, employs 4,900 in Research Triangle Park.
"We leave the money over there, I create jobs overseas, I acquire companies overseas, I build plants overseas," Chambers told "60 Minutes" correspondent Lesley Stahl. "I badly want to bring that money back" to the United States.
N.C. State University accounting professor Roby Sawyers said not only is the U.S. corporate income tax among the highest in the industrialized world, but the United States also is one of only a few countries that tax companies' foreign earnings.
However, Sawyers said a tax holiday is a bad idea because it exempts companies from general policy. If the tax law is not working, he said, it ought to be changed permanently.
Other economists have noted that American businesses are flush with cash in U.S. accounts but are unwilling to spend it in uncertain economic times. President Barack Obama, as well as some congressional Republicans, has not welcomed the idea, saying tax reforms should be comprehensive, not piecemeal.
Idea tried before
The idea of temporarily suspending the corporate tax rate on foreign earnings is not new.
Last year, the U.S. Senate voted against temporarily cutting the rate from 35 percent to 5 percent.
In 2004, the Bush administration was against the idea, but Congress cut the rate to 5.25 percent, a move that benefited more than 800 American companies. According to the Win America coalition, Cisco used "repatriated" money to create 1,200 research and development jobs and Duke Energy transferred $500 million to spend on upgrading its transmission and distribution systems.
Studies of the 2004-2005 tax holiday, however, show that much of the repatriated money went to shareholders and was also used to buy back company stock.
Duke University law professor Richard Schmalbeck said occasional tax breaks could even encourage American companies to develop foreign operations and accumulate foreign earnings.
"I'm not saying they would not use the money to build a plant in North Carolina," he said. "But I think the tax holiday is absolutely the wrong thing to do because there's no convincing evidence that it would create American jobs."
