The latest round of gloomy economic numbers should add greater urgency to bipartisan efforts to pass repatriation legislation. American businesses have an estimated $1 trillion sitting offshore, and many in Congress would like to bring that cash home with a lower tax rate as an incentive.
While many more Democrats have boarded the repatriation train, some critics are clinging to misguided arguments that repatriation legislation – which would subject offshore profits to a temporary tax rate of 5.25% as opposed to the current 35% - would somehow result in a loss to American taxpayers. My response? 5.25% of a trillion dollars is a lot better than 35% of nothing.
Repatriation has to be viewed in the context of profound changes that have altered the competitive landscape for global multinational companies such as Qualcomm. Decades ago American firms had to repatriate their cash, whatever the tax rate, because there weren’t as many good investments outside our borders. Companies brought their cash back to build production and distribution infrastructure to serve the most important market segment of all – America.
Today that’s no longer the case. Companies such as ours make an increasing percentage of their overall profits outside the US. Consider for a moment Qualcomm’s industry – wireless technology. The U.S. is a vibrant marketplace for 3G smart phones, tablets and connected laptops, and it’s forecast to grow by 20% from 2010-2015.
Compare that to India, where we recently invested hundreds of millions of dollars in a new broadband wireless venture. The Indian 3G wireless opportunity is forecast to grow by 233% between now and 2015. The number of 3G subscribers in China will grow by 396% during the same period. Latin America? 417%, led by the red-hot demand for mobile wireless in Brazil.
Now these countries, to be fair, are starting from smaller bases. But even with that caveat, it should be clear to policy makers that firms such as Qualcomm have ample opportunities to grow their businesses outside the US. This isn’t bad news at all, of course – international opportunities will result in American job creation, as we add to our engineering and development teams in San Diego, Texas, North Carolina, Colorado and other US locations. Qualcomm is and always will be a company that grows at home when it succeeds abroad.
The point is that repatriation is no longer an imperative for corporations such as ours. Without a dramatically reduced tax rate, such as the 5.25% rate specified in HR 1834, repatriation simply will not happen. Much of the nearly $1 trillion held by American companies will sit offshore, or be invested in foreign ventures. How is that scenario a win for American taxpayers?