U.S. Politicians Need to Pay Attention—Jobs Will Be Created Overseas if Things Don’t Change
There is no question that the level of job creation currently in America is quite poor. While we have seen some improvement from the depths of the great recession, much more work needs to be done, not only for job creation, but also for a fundamental restructuring of the U.S. economy.
One point that every American, including the politicians, needs to be aware of is that the U.S. is part of the global economy. We cannot have job creation in isolation; we need to understand how America and its businesses fit into the global economy first.
The CEO of Cisco Systems, Inc. (NASDAQ/CSCO), John Chambers, has been quite vocal for the business community in terms of how tax policy is impacting domestic job creation. During Cisco’s current earnings quarter, in which the company did report solid numbers that beat expectations, what was interesting to me were his comments regarding job creation and how the company sees the global economy.
To begin with, 82% of Cisco’s large cash pile, which is approximately $45.0 billion, is not in America. The extremely high corporate tax rates are preventing this firm from being able to bring these funds into America to help job creation domestically. As Chambers states in an interview with Maria Bartiromo on CNBC, the company is looking around the world for the most attractive areas to conduct business. He specifically points out that Cisco will be spending its money in Canada, because that country has better corporate tax rates and is generally an easier place to conduct business. (Source: “Cisco’s Chambers: If No US Compromise We Will Invest Overseas,” video interview, CNBC, November 13, 2012.) Cisco already has a large number of facilities in numerous countries around the world.
Cisco has conducted many international deals, and I do appreciate the honesty and sincerity with which Chambers is expressing his views. I do believe him when he says he would like to repatriate these funds and expand within America, which would result in significant job creation domestically. But we all have to realize that we’re living in a global economy. Money has no nationality.
The fiduciary duty of any businessperson is to do what’s best for the company. With America having the highest corporate tax rate in the world at 35%, the question isn’t why are companies leaving, but rather: why aren’t more firms moving abroad? As one example, Canada’s federal corporate tax rate is 15%. There are no language barriers, no differences in patent law, and the government encourages businesses to grow and expand. And this is only one country; how many other countries are trying to attract businesses that will lead to job creation in their nations?
This is the problem with politicians who believe that they can force companies into job creation. America is part of the global economy. The solution to job creation is to determine what’s best for building strong companies. Only strong companies that can continue growing will be involved in job creation.
If you create an environment that penalizes growth, versus other countries that reward it, the natural result will be a decline in revenue as people and businesses leave. We’re talking about billions upon billions of non-taxpayer dollars sitting idle in foreign countries, prevented from coming back to America because the current system penalizes repatriation.
America can no longer sit back and assume job creation will happen naturally. The politicians need to create a favorable environment to make America competitive within the global economy. Whether or not we like it, we are competing with every major industrial nation in the world to build strong companies to drive job creation. America is still a leading nation, but more needs to be done to ensure the U.S. remains a leader for the next century.