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Computing

Cisco: We Won't Hire U.S. Employees Until Tax Code Changes

Cisco: We Won
February 15, 2013 1:42PM

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"Tax policy will determine where our growth and head count will be," said Cisco CEO John Chambers. "I'm a very loyal American citizen and company, but in terms of future growth, unless tax policy changes, you will see that occur outside the U.S....Wherever we acquire is where our head count growth is going to be."

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Cisco is sitting on a pile of cash -- $46 billion to be exact -- and the networking giant has a history of acquiring smaller technology firms. But if you look closely at Cisco's recent acquisitions, you'll notice a clear trend: Cisco isn't shelling out its multiplied billions to buy companies in the U.S.

There's a good reason for this: the U.S. tax code.

In fact, 80 percent of Cisco's $46 billion in cash is not even in a U.S.-based bank account. When Cisco taps into those deposits to spend money in America, it comes with a hefty 35 percent tax bill.

John Chambers, CEO of Cisco, has been vocal over the years about the tax code. In fact, he's been somewhat of an activist. He's tried to change it. He's sent clear messages to the government that high taxes keep him from hiring more workers stateside.

Chambers Throws Down Gauntlet

Now, Chambers is upping the ante in his face-down with the U.S. government. He's made it clear that he won't buy any more U.S. companies -- or hire any more U.S. workers -- until the government relents on its high corporate taxes.

"Tax policy will determine where our growth and head count will be," Chambers told CNBC. "I'm a very loyal American citizen and company, but in terms of future growth, unless tax policy changes, you will see that occur outside the U.S....Wherever we acquire is where our head count growth is going to be. If the majority of our money remains outside the U.S., and this depends on tax policies, that's where you'll see us acquire going forward."

What does Chambers want, specifically? He wants taxes lowered for repatriation, for when his company's cash stores overseas are brought back and spent in the U.S. Actually, he'd prefer a repatriation holiday -- no taxes at all. And Chambers is not alone is his fight.

Will Government Budge?

Zeus Kerravala, principal analyst at ZK Research, told us he's disappointed that the repatriation issue has not yet been addressed, because it could stimulate economic activity in the U.S.

"Now that the election is over, the Obama administration may consider making a change. It's been a hot-button issue for some time. I'd expect a Republican administration more so than a liberal one, but I am hopeful they will pass repatriation," Kerravala said. "The Obama administration's track record would indicate they may not make any change. But they are also feeling pressure from companies like Oracle and Microsoft to make this move."

Although Kerravala doesn't agree with tech giants skipping out on tax bills completely, he called the corporate 35 percent tax rate "ridiculous." He would like to see the government find a compromise somewhere between no tax and a 35 percent tax.

"We're at a tax rate where they are not going to do it. So you are holding out hoping you get some tax money from repatriation but they are not going to. So if you lower the tax rate at least you get something," Kerravala said. "If you don't, you get nothing and you hamstring the larger U.S. companies and create a bit of an unfair competitive environment with foreign companies."

Tell Us What You Think
Comment:

Name:

Brad:

Posted: 2013-06-01 @ 7:25am PT
I don't understand why millionaires only pay less then 15% in capital gains but a US corporation investing in the US pays up to 35%. There is to much disparity. I say bring the tax to 18% for both.

Tom,Southerner:

Posted: 2013-05-07 @ 2:16pm PT
Meanwhile, Obama supporters Google and GE make billions and pay no taxes.

John, American:

Posted: 2013-02-20 @ 10:16am PT
Be careful Cisco if you want to play like that. There are other vendors out there.

Editor:

Posted: 2013-02-15 @ 2:36pm PT
Thank you, we've made the correction.

Corbin:

Posted: 2013-02-15 @ 2:20pm PT
While $46 million is a lot of money, it would be a very tiny amount for Cisco. The article should be $46 BILLION in cash. You mention million several times.



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