Via Ash Bennington at NetNet, Dennis Kneale has described Cisco CEO John Chambers’ decidedly contrarian stimulus proposal:
The Obama administration wants to “crack down” on tax loopholes to skim a bigger chunk of the profits that U.S. titans earn overseas and bring back to the U.S. Chambers proposes just the opposite: Slash tax rates on overseas earnings to only 5 percent or so from 35 percent, and a windfall of cash will come home.
Chambers, here for a private lunch with CNBC staff, told me beforehand that some 650 U.S. companies have socked away $1.2 trillion in cash overseas. Just the top 75 U.S. giants have collectively $1 trillion in offshore accounts.
But they don’t bring it home because the feds would skim $420 billion of it right off the top, at a 35 percent tax rate.
One can quibble with Chambers’ estimates of the assets being held overseas, but his logic seems sound:
The last time Treasury tried this tax-slashing approach, in the 2004 Jobs Creation Act, 55 companies brought home an estimated $800 billion in cash, Chambers says.
“That’s more than the entire stimulus package,” he told me. “This is the easiest job of stimulating the U.S. economy—and it doesn’t cost the taxpayer $100,000 to $1 million per job the way the stimulus plan does.”
And as Kneale writes, this isn’t a tax giveaway:
Chambers points out the U.S. is the only country in the world that taxes its home companies on profits earned outside its own borders.
It’s rather perverse when you think about it: This money already was taxed once by the local government where it was earned. And the U.S. government incurred no costs related to that cash, in terms of infrastructure or security or defense.
This is something I feel very strongly about. How are profits earned by U.S. firms outside of the U.S. a bad thing that ought to be discouraged? This doesn’t somehow discourage offshoring. Rather, it encourages firms to incorporate elsewhere.
Bennington thinks that Chambers’ idea is a political winner:
Interestingly, the support for such proposals doesn’t divide neatly along traditional pro-business, pro-labor lines: Andy Stern, the former international president of the Service Employees International Union, was recently cited in a Wall Street Journal article as supporting a similar plan.
Republicans may see this proposal as a pro-business alternative to federal stimulus spending. Prominent Republican lawmakers, including House Minority leader John Boehner, have come out publicly against Economic Stimulus Act spending, which some charge has grown government but failed to create private sector jobs.
The overseas tax cut proposal may be precisely the kind of targeted, pro-business policy that GOP lawmakers can embrace.
This certainly makes intuitive sense. Good for Stern for embracing the idea — further evidence that he’s an impressive guy, ideological blind spots notwithstanding.