March 18 (Bloomberg) -- A group of Silicon Valley corporate leaders ventured to Capitol Hill this week with a message for U.S. lawmakers: If you don’t lower our taxes, plenty of other countries will.
The 18 CEOs and other executives met with dozens of legislators March 16 and yesterday with the aim of also protecting government spending on scientific studies and tax deductions for corporate research and development while pushing for changes they say will make their companies more competitive.
It was the Semiconductor Industry Association’s first lobbying tour since moving its headquarters from San Jose, California, to Washington last September, and a bid by the industry to flex its muscle as one of the country’s biggest exporters.
“The U.S. is competing with countries that want to build a semiconductor industry,” said John Daane, chief executive of San Jose, California-based Altera Corp., which designs programmable semiconductors. “Malaysia is offering a tax holiday to lure the businesses, and it’s basically a zero percent tax rate.”
Altera, whose devices are key components of products such as mobile phone base stations, already outsources much of its business to low-cost countries. The company has two research centers in the U.S., along with several sales offices. All of its chips, though, are made by Taiwan Semiconductor Manufacturing Co.
The industry as a whole employs 182,200 people in the U.S. at an average salary of almost $100,000 a year, and it spends $20 billion a year on research, according to SIA. It exports more than any other U.S. industry, and its products are at the heart of dozens of other items as varied as computers, cell phones and automobiles.
The SIA spent about $655,000 on lobbying last year to push for a lower corporate tax rate, more federal funding for scientific research, increased spending on science education, and a revamp of immigration laws so that more foreign graduates of U.S. universities could remain in the U.S.
The group scored a victory when Congress passed, and President Barack Obama signed, legislation reauthorizing the America Competes Act, which provides federal money for scientific research and education.
On immigration, the industry has had less to celebrate. “The national politics were against us on this issue,” said Brian Toohey, a former pharmaceutical industry lobbyist hired last year as SIA’s president. He replaced George Scalise, who had come from the tech industry.
An overhaul of the tax system remains a pressing matter, with Obama calling for changes and Representative Dave Camp, a Michigan Republican who heads the House Ways and Means Committee, proposing his own plan.
What the semiconductor executives want, above all, is for the U.S. to leave their foreign earnings alone.
The U.S. taxes companies on their worldwide income, though only when they bring those earnings home. That structure was created at a time when most companies did the bulk of their business exclusively in the United States and “semiconductor” was a word most people had never heard. The industry wants Congress to cut the 35 percent corporate tax rate -- among the highest in the world -- and to stop taxing income businesses earn outside the U.S.
Many companies are able to lower their actual taxes by keeping income outside the U.S.
Analog Devices, a Norwood, Massachusetts-based manufacturer of integrated circuits used in digital signal processing, paid an effective rate of 23 percent last year on sales of $2.7 billion. Its founder, Ray Stata, is chairman of SIA’s board.
Camp this week called for lowering the corporate rate to 25 percent, and his committee has begun holding hearings on reducing corporate taxes.
Cutting the tax to that degree would require curbing some deductions, said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington. Camp hasn’t said which tax break he would favor eliminating.
Obama has proposed cutting the corporate rate and ending many of the special preferences companies enjoy. His goal is to simplify the tax code while keeping it “revenue-neutral,” meaning it doesn’t increase the federal budget deficit.
Industries are attached to their tax preferences, and, like the semiconductor executives, their leaders seek to persuade lawmakers to keep them in place even if the overall corporate rate is lowered.
“The scary part of this is the revenue-neutral part,” Stata said in an interview. “We’re trying to figure out how not to end up worse off.”
Toohey said the SIA doesn’t want lawmakers to touch the research tax credit -- unless they boost it to make R&D even cheaper.
He also said the companies would defend the current system that taxes their foreign profits only when they bring those earnings back into the U.S. The industry would like to see the U.S. move to a territorial tax system, where foreign-earned profits are never taxed by the Internal Revenue Service. That would give companies the freedom to reinvest inside the U.S.
“We have huge gobs of money sitting out there looking to be invested,” Stata said.
Short of a comprehensive overhaul, Stata and the other executives are looking for a one-time amnesty that would allow them to bring their money home and pay a lower tax rate. Representative Brian Bilbray, a California Republican, has introduced a bill to grant the holiday to companies that use the money for research and development. Obama administration officials oppose the idea.
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