Wednesday, July 20, 2011

Cisco Trims Workforce by 9%

On Monday, tech-giant Cisco announced that it would reduce its workforce by approximately 9% to reduce costs and improve profitability.

Why do I highlight this on a tax blog? (No, I'm not trying to channel Jim Cramer.)

John Chambers, Cisco's CEO, is one of the most vocal advocates of a repatriation tax holiday. Chambers (and other advocates of a repatriation tax holiday) argues that U.S. based multinationals would use repatriated cash to expand U.S. business activities, stimulating jobs, aggregate demand and economic growth.

I've discussed the proposed repatriation tax holiday here, here and here. Although a repatriation tax holiday has some intuitive appeal (Andy Stern's 'it can't hurt' principle), it would be a step in the wrong direction from a policy perspective.

Cisco's recent announcement underscores my concerns about the proposal. Cisco is a tech giant with insignificant long-term debt and abundant cash. If Cisco management were targeting robust growth opportunities, Cisco would be hiring employees and using its cash to expand its business (within and outside the United States). Instead, Cisco management is in cost-cutting mode, which involves reduction in employee headcount.

I completely support Cisco's attempt to increase shareholder value by optimizing its cost structure. I also support Cisco's right to lobby for a repatriation tax holiday. However, I believe that Cisco and other advocates of such a holiday are distorting facts, insofar as they suggest that offshore cash will be used to increase U.S. hiring. Cisco's recent workforce reduction impeaches Chambers's credibility on that point.

I've said it before, and I'll probably say it again: a repatriation tax holiday is no Holy Grail for lawmakers seeking to address our jobless recovery. Long term, we need comprehensive and fundamental business tax reform, including reform of the international tax rules.