May 5, 2009

Tech Firms Critical Of Obama’s Tax Proposal

President Barack Obama on Monday announced a new proposal that would close tax loopholes for companies that keep their earnings in overseas banks in order to avoid paying higher US taxes.

But experts and spokespersons from the high tech industry say such a law could be detrimental for their growth as businesses.

Obama intends to bring more tax revenue to the US and create more job opportunities at home by discouraging efforts to save earnings by seeking lower tax rates overseas.

But tech giants such as Hewlett-Packard Co, IBM Corp, Cisco Systems Inc, Microsoft Corp and Google Inc could see their earnings drastically decrease if the proposal goes into law.

According to the Associated Press, each of those companies took in more than $1 billion as a result of using banks with lower tax rates. Altogether, the AP estimated that the companies have saved $7.4 billion in their last fiscal years through seeking lower foreign tax rates.

Under President Obama's proposal, Google, for example would have had to pay taxes to the tune of 45.2 percent rather than 27.8 percent last year. Foreign tax rates lowered Google's taxes in 2008 by $1.02 billion.

HP earned an extra $1.77 billion by lowering its tax rate in fiscal year 2008. Cisco and Microsoft each took in more than $1.6 billion, and IBM reported about $1.3 billion in extra earnings from lower foreign tax rates.

"It would be like an earthquake for high tech," Carl Guardino, chief executive of Silicon Valley Leadership Group, an industry trade association told the AP.

"On a Richter scale of 1 to 10, this would be a 12."

Google spokesman Adam Kovacevich told the AP on Monday that it is too early to determine how Obama's new tax proposal would impact the company's operations because the details are likely to be revised as the proposal makes its way through Congress.

General Electric Co lowered its tax rate by almost 27 percent last year, reaping a gain of more than $5 billion, said the AP.

While Obama hopes to bring more jobs to the US economy, Guardino said that high tech companies' growth outside of the US is the source of many new jobs overseas and at home.

He told the AP that about 50 executives from Silicon Valley are planning a visit to Washington this week in hopes of convincing lawmakers that the proposal could stifle their growth.

"Further study is needed to assess the impact of this plan on U.S. businesses," said Democratic Senator Max Baucus of Montana and chairman of the Senate Finance Committee.

"I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses."