U.S. Senate investigative report refutes the job creation claims made by Cisco CEO John Chambers

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U.S. Senate investigative report refutes the job creation claims made by Cisco CEO John Chambers

"The 2004 repatriation rewarded corporations that kept substantial funds offshore, and has created a new incentive for U.S. corporations to keep shipping jobs and diverting domestic funds offshore."

Tue, 10/11/11 - 9:57am View comments

Today, the United States Senate Permanent Subcommittee on Investigations issued a scathing 55-page report that refutes the job creation claims made by Cisco CEO John Chambers:

Repatriating Offshore Funds: 2004 Tax Windfall For Select Multinationals

Shockingly in my opinion, the Senate report revealed the following previously unknown fact about how Cisco benefited from the American Jobs Creation Act of 2004 (AJCA, i.e. the foreign profits repatriation tax holiday):

"Cisco informed the Subcommittee that, after claiming a $1.2 billion dividend received deduction under the AJCA in 2006, it later amended its 2006 tax return and no longer took the $1.2 billion deduction. Cisco told the Subcommittee that this action was the result of a larger settlement with the IRS of issues related to a 2002-2004 audit, which resulted in Cisco recharacterizing the $1.2 billion as previously taxed and therefore not subject to any additional tax. According to Cisco, since the funds were considered previously taxed, they were no longer considered a dividend."

I mean, the Senate report implies that Cisco paid absolutely NO tax whatsoever on the $1.2 billion in cash it repatriated from overseas under the provisions of the 2004 foreign profits tax holiday (i.e. AJCA - American Jobs Creation Act of 2004).

Alarmingly in my opinion, the Cisco backed foreign profits tax holiday lobbying powerhouse, WIN America, immediately attacked the U.S. Senate Permanent Subcommittee on Investigations report with the following misinformation that's clearly NOT accurate:

"Cisco used repatriated funds to create 1,200 R&D (mostly engineering) jobs. Since the 2004 law went into effect, Cisco has added 8,500 jobs in the United States."

However, Cisco's yearly Form 10-K's filed with the U.S. Securities and Exchange Commission contain the accurate facts:

From the end of Cisco FY05 until the end of Cisco FY11, only 9,887 new Cisco jobs were created in the United States (scandalously in my opinion, Cisco won't reveal how many of its new 9,887 U.S. based jobs were actually filled by U.S. Citizens).

However simultaneously and most tellingly, from the end of Cisco FY05 until the end of Cisco FY11, Cisco created 23,525 new jobs in locations outside the United States.

That's right, after receiving a $1.2 billion foreign profits repatriation tax holiday in 2004, Cisco created 237% more new jobs in locations outside of the United States than it did in the U.S.

Filled to the brim with outrageous hypocrisy (at least in my opinion), 11-months ago Cisco CEO John Chambers blogged:

"Our number-one goal must be to restore confidence in our economy and put people back to work. Our commitment to the U.S. economy and to the American worker is strong... As a U.S.-based multinational company, Cisco is committed to the continued economic growth and technological leadership of the United States. This country must have an environment where innovation and investment is encouraged and rewarded.

"We believe that at least temporarily reducing the incremental tax rate on foreign earned profits would encourage companies to invest in the U.S."

So what was the conclusion of today's United States Senate Permanent Subcommittee on Investigations report (page 44 of the PDF and/or page 41 of the document)?

"The 2004 repatriation rewarded corporations that kept substantial funds offshore, and has created a new incentive for U.S. corporations to keep shipping jobs and diverting domestic funds offshore. Data shows that the 2004 repatriated funds flowed largely from tax havens, rewarding corporate behavior that moved funds to offshore locales rather than U.S. plants or manufacturing. The long term consequence of that policy is the current corporate stockpiling of offshore funds in anticipation of another repatriation tax break allowing multinational corporations to use a 5.25% tax rate in place of the top 35% rate that applies to domestic corporations. Such disparate tax rates punish small and mid-sized domestic corporations that don't do business offshore, by placing them at a competitive disadvantage, allowing their competitors to escape paying their fair share of taxes, and discouraging multinational corporations from investing in America. The AJCA's negative effects, in both the short and long-term, provide strong evidence that repatriation tax breaks create unfair tax advantages for a narrow sector of corporations with damaging economic impacts on the U.S. economy as a whole."

Cisco's FY11 global workforce reduction appears to have specifically targeted the United States

Dilutive management compensation practices claimed 68% of stock buybacks during Cisco's Q4'FY11

What's your take?