Obama's tax plan could impact Silicon Valley

May 4, 2009 7:51:48 PM PDT
Some of the biggest high tech companies in Silicon Valley could be impacted by an Obama Administration proposal Monday to close loopholes on revenue earned overseas, but not subject to tax until the funds are repatriated to the United States.

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They're some of the valley's biggest names -- Hewlett Packard, Google and Cisco Systems. The issue is over how much money they make and keep overseas.

"Any income that is earned outside the U.S. that is not taxed until such time it is brought back into the U.S., and we have had this since 1960, 1961," said Santa Clara University finance professor Atulya Sarin, Ph.D.

These are global companies that know no borders.

Last year alone, Cisco earned over $5 billion overseas, so did Hewlett Packard. Google wasn't far behind at $3.8 billion.

Google, in fact, generates over half of its revenue overseas. However, the president wants to take away those and other tax benefits.

"We will use the savings to give tax cuts to companies that are investing in research and development here at home so that we can jump-start job creation, foster innovation, and enhance America's competitiveness," said President Barack Obama.

Cisco issued a statement saying that the plan: "Would adversely impact our ability to invest and grow, and to compete against our foreign competitors who are not subject to this U.S. tax."

The administration argues that the current tax deferral only encourages companies to hire overseas workers.

Professor Sarin is convinced the tax change will put American companies at a competitive disadvantage.

"The strongest message it says is, move out of the U.S. because that's the only way you can survive, and any CEO or chairman, to maximize their shareholder wealth, will be thinking hard about it tonight," said Prof. Sarin, Ph.D.

Google told ABC7 it's too early to evaluate the impact on its operations. HP did not respond to our inquiry. In the meantime, 50 top level executives from Silicon Valley are on a visit to Capitol Hill this week for their annual visit to lawmakers and they're making this issue their number one topic of conversation.

7:45 p.m. update:
After our story aired an HP spokeswoman sent us the following statement: "At this point it's too early to predict fully the impact to HP. We are committed to working with Congress to create a tax code that targets abusive international tax schemes, while simultaneously encouraging America's businesses to access foreign markets and create jobs here in the US. As a US-based company and major US employer, HP supports international tax rules that foster the competitiveness of US-based global companies. Any reforms to the current system need to make certain that our tax policies are fair and encourage innovation and economic growth that supports the global competitiveness of US businesses."

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