Triangle CEOs back tax break

Red Hat and Quintiles are among companies supporting a bill at a Hagan event.

dranii@newsobserver.comOctober 8, 2011 

The CEOs of Red Hat and Quintiles, two of the largest companies based in the Triangle, say that a new bipartisan bill co-sponsored by North Carolina Sen. Kay Hagan could entice them to hire more U.S. workers.

Red Hat's Jim Whitehurst and Dennis Gillings of Quintiles were among a half-dozen local business executives who turned out at a press briefing Friday, flanking Hagan in a show of support for the bill that calls for temporarily cutting the tax rate for corporate profits earned overseas. Many multinational corporations with a presence in the state across a range of industries - including Cisco Systems and Duke Energy - have pushed for the tax break.

Whitehurst said that Linux software company Red Hat, which operates in more than 50 countries worldwide, is likely to add 1,000 workers over the next four or five quarters.

"How many of those are going to be in the U.S. versus overseas is simple math," he said. "By making hiring in the U.S. more cost-effective, not in wages but because of changes in the tax rate, it will shift the mix on how many of those new jobs are created in the U.S." Red Hat has roughly 700 workers in Raleigh and 4,100 worldwide.

U.S. corporations that bring their profits home from overseas now pay a 35 percent tax on that money. The bill would temporarily reduce the tax rate to 8.75 percent - or lower if they expand their U.S. payroll.

"This, I believe, is a strong incentive for companies to hire and invest in workers right here in America and, most importantly to me, right here in North Carolina," Hagan said at the event held at Quintiles' worldwide headquarters along Interstate 40 in Durham. Hagan, a Democrat, is co-sponsoring the bill with John McCain, a Republican from Arizona.

But critics such as Edwin McLenaghan, public policy analyst for the N.C. Budget & Tax Center, are skeptical of such claims.

"There is no evidence that having this kind of tax repatriation holiday is going to lead to economic growth or job growth in years to come," he said.

Right now American companies have about $2 trillion in cash at their disposal but for the most part aren't hiring workers because they're obeying the law of supply and demand, said McLenaghan: "What they really need is customers, they need sales."

A similar corporate tax break on foreign profits in 2004 was criticized for benefiting shareholders, not job seekers.

Gillings, CEO of giant pharmaceutical services company Quintiles, said that over the past five years, his company has been adding employees in the U.S. and, especially, in North Carolina at a faster clip than the company's overall expansion rate. Still, he said, that disparity should widen if the tax break becomes law.

"Current U.S. tax rates penalize companies that want to bring these earnings back to the state because it subjects them to an additional 35 percent tax," he said. "So instead ... of bringing these moneys back to the United States, we often design how we are going to invest them abroad."

Since 2006, Quintiles' worldwide workforce has grown 41 percent to nearly 24,000. Over that same span, the number of its U.S. workers rose 75 percent to nearly 7,000, and its North Carolina workforce rose 85 percent to 2,109.

Whitehurst also talked about a disincentive to invest in U.S. workers under the current tax system. He noted that the company is considering adding to its research-and-development center in Boston, a move that would add a few hundred workers, but also is looking at sites abroad.

"When foreign dollars are basically a (35) percent discount to U.S. dollars, that has to weigh into our thinking," he said.

Ranii: 919-829-4877

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