Cisco’s 6,500 Job Cuts Could Hurt Push for Offshore Tax Holiday
Stock Chart for Cisco Systems Inc (CSCO)
Cisco Systems Inc. (CSCO)’s plan to eliminate about 6,500 jobs worldwide is complicating the corporate lobbying campaign for a tax holiday that would allow multinational companies to return $1 trillion in offshore profits to the U.S. at a low tax rate.
The San Jose, California-based company, the world’s largest networking-equipment maker, has been among the most vocal supporters of a repatriation holiday being considered in the U.S. Congress. Cisco chief executive John Chambers has said he wants to return as much as $30 billion in overseas profits to the U.S. The company could increase its headcount by 10 percent, depending on details of a repatriation bill, he said before the job-elimination announcement.
The cuts at Cisco, which include 2,100 employees who took a voluntary early-retirement program, were announced July 18 as the push for a repatriation holiday gained support on Capitol Hill. Democrats including Senator Charles Schumer of New York signaled their backing in recent weeks for repatriation measures that would include job-creation requirements.
Other Democrats said Cisco’s job-cut announcement confirms their concerns about a repatriation holiday’s potential effect on U.S. corporate employment levels.
“As a leading proponent of this corporate tax giveaway, Cisco is announcing massive layoffs instead of investing in American job creation with the billions it already has available,” Representative Lloyd Doggett, a Texas Democrat, said in an e-mailed statement. “Once again, it is clear that large multinational corporations have no intention of using any repatriation tax windfall to create jobs.”
Jennifer Dunn, a Cisco spokeswoman, said yesterday the job cuts are part of a “restructuring to simplify our organization and refine operations.”
“Repatriation is not about Cisco or an individual company,” she said. “Repatriation will provide a near-term boost to the entire U.S. economy, level the playing field for American businesses and make us more competitive as a nation.”
Cisco rose 48 cents to $16.30 at 12:19 p.m. today in New York trading.
Representative Kevin Brady, a Texas Republican who sits on the tax-writing House Ways and Means Committee, introduced legislation in May that would allow companies to repatriate funds at a 5.25 percent tax rate compared with the top 35 percent corporate rate. His bill includes a provision that would require companies to add $25,000 to their taxable income each time they reduce their total workforce below the firm’s average.
The Obama administration has said repatriation should be considered only as part of an overhaul of the U.S. tax code.
Representative Sander Levin of Michigan, the top Democrat on the Ways and Means Committee, said yesterday he wasn’t sure Cisco’s job cuts had anything to do with its support for a repatriation holiday. It does raise questions, he said.
“We need to find out whether they’re outsourcing any of their functions, what the cause of the layoffs might be,” he said. “I’d like to know what their employment plans are.”
Senator Carl Levin, a Michigan Democrat who chairs the Senate Permanent Subcommittee on Investigations, sent Cisco a letter June 29 asking how the company would use repatriated funds. Levin, who sent a similar letter to DuPont Co., has said the inquiries are part of an investigation, and a report will be issued soon.
Job Creation Issue
One of the biggest questions in the repatriation debate is whether companies will use the money they return to the U.S. to create jobs. Jim Rogers, president and chief executive of Duke Energy Corp. (DUK), said in June that the $1.3 billion he wants to repatriate to the U.S. would create 15,000 to 20,000 jobs at his company and across the broader economy.
Democrats said a tax holiday in 2004 didn’t create jobs as advertised. Hewlett-Packard Co. (HPQ), for instance, returned $14.5 billion to the U.S. and reduced its workforce by 14,500 employees in a year.
“The model that was constructed a few years ago said that money was being returned at 5.25 percent for job creation and instead layoffs at many big employers were announced almost simultaneously,” said Representative Richard Neal, a Massachusetts Democrat and a member of the Ways and Means panel.
Dunn, the Cisco spokeswoman, said the company hired about 1,200 engineers after the 2004 holiday.
Along with Cisco, 43 companies and trade groups, including Apple Inc. (AAPL), Pfizer Inc. (PFE) and Duke Energy, have joined a coalition lobbying for a repatriation holiday. Doug Thornell, a spokesman for the WIN America coalition, said the effort “isn’t about just one company.”
“It’s about the benefit to the broader economy,” he said. “It’s whether we continue a failed policy that lets a trillion dollars languish overseas when our economy desperately needs the help.”
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