Wingspan

Mike.Klayko

Reflections of D.C. Trip: Are Those the 1970s I See in the Rearview Mirror?

by Mike.Klayko on ‎04-11-2011 08:00 AM (203 Views)

As I write this, I am finishing up a trip to Singapore, Malaysia, India and Brazil talking to customers and prospects about Brocade’s Ethernet Fabric technology that is making cloud-optimized networks a reality today. I will cover the details of that trip in my next blog….but it is interesting to note that one of the reasons my trip was so successful is because the countries I visited can react so quickly to new technology. They are not burdened with some of the archaic infrastructure and regulatory issues that we face in the U.S.

While I was away I kept up on the news of the impending “Government Shutdown” and thought that we seem to be reaching a point that our infrastructure and regulatory morass are about to bring us to a screeching halt. I am seriously concerned and I am not alone.

Before I jumped on a plane to Asia, I spent several days in Washington D.C. with a large group of Silicon Valley CEOs as part of the Silicon Valley Leadership Group’s semi-annual trip. Our goal? To help Congress get out of their own way.

I am not sure how we ever began a public (Government) vs. private (Business) debate but I can tell you with certainty that no one is winning. We need to get the economy back on track and I am pleading with Congress to listen to the job providers in this country to understand how we can give the U.S. economy a large influx of cash.

You have heard me talk about repatriation before – so if I am boring you – I apologize in advance – and you can read something more soothing such as education costs going up, tax refunds being delayed or how politicians are beginning their re-election campaigns for 2012. Perhaps when Congress learns how to balance the budget and pay down the deficit I will stop talking about repatriation but until then…. I have a little word problem for you.

If the Treasury taxes U.S. corporations 35% on overseas revenue that they already paid taxes on in another country and the U.S. corporations decide to leave that revenue overseas, how much will the Treasury collect in taxes?  Answer = $0. OK – another one. If Congress lowers the repatriation tax rate to 5% even though this is still a double tax, how much money could potentially flow back into the U.S.? Answer = $1.2 trillion.

Here’s another word problem. If American companies leave their money offshore, what happens to that money? Answer:  It gets used by overseas banks and corporations, to create overseas jobs, to educate overseas students, to benefit overseas economies.

There are some people in Congress who get it. Congressman Paul Ryan, who threw out a headline-grabbing number this week—$6.2 trillion in cuts over the next 10 years—and his House colleagues seem very open to the idea of repatriation. House Majority Leader Eric Cantor thinks that it can happen quickly and so does California’s Senator Dianne Feinstein, with whom I had some very productive and open discussions on this subject that began with my trip to D.C. last fall.

But there are many who want to see repatriation as part of a comprehensive tax reform. The proposed tax reform to set both the personal and corporate tax rates at a fixed 25% in particular is worth considering. As a businessman in charge of a $2 billion multinational company, I can say definitively that businesses thrive on certainty and stability. Reforming the tax code in this manner would help achieve that and enable us to compete with companies outside the U.S. on a much more level playing field.

But I am thinking that is a long-term solution that will take a while to get approved. In the meantime, we’re shipping more jobs overseas (follow the money) and countries like China, Singapore, India and Brazil are in a position to adopt and invent technology faster – and are educating their workforce at a daunting pace.  And some U.S. multinationals that see the writing on the wall are re-incorporating in foreign domiciles so that the U.S. can’t tax any of their overseas revenues.

Some of us look in the rearview mirror and think this problem is too distant to affect us. That’s what U.S. automakers in the 70s thought about foreign car companies. You might wonder why I keep pounding away at this idea instead of adopting the “if you can’t beat ‘em join ‘em mentality”. Right, wrong or indifferent, I still believe in this country and will do everything in my power to make our government leaders understand what is happening.

One thing I would ask of you….please don’t sit on the sidelines. Join the conversation. Get involved. Ask our leaders to try some of our basic business principles – and elect those leaders who “get it”. It will be an honor and privilege to work alongside you to get this country back on track again.

Let it be written.

Mike

Comments
by (anon) on ‎04-18-2011 02:46 PM

The problem of shipping jobs and money overseas is already very real today.  Those who can't see it refuse to look at the facts.  Unemployment continues and businesses shut down in our country, which is the root of other financial problems such as foreclosure and credit issues.  Excellent, eye-opening post.