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Old June 4th, 2009, 09:52 AM
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Ballmer Says Tax Would Move Microsoft Jobs Offshore

Ballmer Says Tax Would Move Microsoft Jobs Offshore

June 3 (Bloomberg) -- Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the U.S. Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.

U.S. tax rules let companies defer paying corporate rates as high as 35 percent on most types of foreign profits as long as that money remains invested overseas. Obama says he wants to end such incentives to keep foreign profits tax-deferred so that companies would invest them in the U.S.

Microsoft reported an overall effective tax rate of 26 percent for 2008 in its last annual report. “Our effective tax rates are less than the statutory tax rate due to foreign earnings taxed at lower rates,” the report said.

Barry Bosworth, an economist in Washington at the Brookings Institution research center, said many software companies such as Microsoft have exploited tax and trade rules in the U.S. and other countries to achieve a low overall tax rate.

Ireland Subsidiary

Typically, he said, a company like Microsoft develops a product like Windows in the United States and deducts those costs against U.S. income. It then transfers the technology to a subsidiary in Ireland, where corporate tax rates are lower, without charging licensing fees. The company then assigns its foreign sales to the Irish subsidiary so it doesn’t have to claim the income in the United States.

“What Microsoft wants to do is deduct the cost at a high tax rate and report the profits at a low tax rate,” Bosworth said. “Relative to where they are now, the administration’s proposals are less favorable, so there will be some rebalancing on their part.”

Ballmer is one of 10 U.S. software company executives pushing back against the tax proposals in meetings today with White House officials including Jason Furman, deputy director of the National Economic Council, and the heads of congressional committees such as House Ways and Means Committee Chairman Charles Rangel, a New York Democrat.

Expense Deductions

Among other things, Obama proposed limiting expense deductions such as those for employee compensation when companies defer U.S. tax on foreign profits.

In a roundtable discussion today, Ballmer, Symantec Corp. Chairman John Thompson and the heads of smaller companies such as privately held Bentley Systems, an Exton, Pennsylvania-based maker of engineering software, said such policies would hurt domestic investment, reduce shareholder value and increase the cost of employing U.S. workers.

Ballmer said that, while the Obama proposals would preserve expense deductions related to research and experimentation costs, the overall deduction limits for companies that defer tax on foreign profits would raise the cost of employing U.S. workers. Fiduciary responsibility to shareholders would require Microsoft to cut costs, he said, meaning many jobs would be moved out of the country.

Worldwide Employees

Microsoft employed 95,029 people worldwide as of April 21, of whom 56,552 were based in the United States, according to the company’s Web site. The company announced it was firing up to 5,000 people in January while hiring some new workers; the company has shed about 1,000 jobs since then, spokesman Lou Gellos said.

Ballmer estimated that higher taxes under the proposal would reduce profits for companies that comprise the Dow Jones Industrial Average by between 10 and 15 percentage points.

“It’s just a question of how much will the Dow come down,” Ballmer said. “It’s not about companies anyway; we’re talking about shareholders.”

In addition to limiting current deductions for companies that defer U.S. tax on their foreign profits, Obama proposed altering a set of rules known as “check the box” that allow companies to shelter foreign profits in offshore subsidiaries that can be disregarded for U.S. tax purposes.

Duck Liabilities

While the rules were designed in 1997 to protect U.S. companies from paying excessive tax to other governments, Obama administration officials say it has evolved into a way to duck U.S. liabilities. Altering the rule, which Obama dubbed a “loophole,” would generate $86.5 billion in new revenue by 2019, the administration says.

The third international tax proposal would change rules governing how companies can claim tax credits for levies paid to foreign governments. Officials say some companies abuse the rule to accelerate tax credits before they could otherwise be claimed.

Obama has said his proposals would protect or create jobs in the United States.

Thompson of Symantec, the Cupertino, California-based maker of Norton anti-virus software and similar tools, said software companies are frustrated by being called tax cheats and compared with companies that moved their headquarters to low-tax countries such as Bermuda.

‘Counterintuitive’

Thompson called the Obama proposals “counterintuitive” to the administration’s other stated goals of fostering an innovation-oriented economy.

“It is a little bit ironic that most of our most significant trading partners and partners globally have taken the tack that they’ll reduce corporate tax rates to stimulate economic growth and not raise corporate tax rates,” Thompson said.

The roundtable was organized for Bloomberg News by the Business Software Alliance, a Washington trade group coordinating the executives’ meetings with policymakers.

To contact the reporter on this story: Ryan J. Donmoyer at e-mail rdonmoyer@bloomberg.net

Last Updated: June 3, 2009 16:12 EDT

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  #2  
Old July 24th, 2009, 05:12 AM
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Re: Ballmer Says Tax Would Move Microsoft Jobs Offshore

What Obama does is opposite of what government should be doing to resolve the crisis. It would be advisory to reduce taxes to stimulate economy. Instead his policy is bombing economy with newly printed money. Therefore Ballmer's decision is not surprising.
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Old July 24th, 2009, 05:32 AM
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Re: Ballmer Says Tax Would Move Microsoft Jobs Offshore

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Originally Posted by Lumber Joe View Post
What Obama does is opposite of what government should be doing to resolve the crisis. It would be advisory to reduce taxes to stimulate economy. Instead his policy is bombing economy with newly printed money. Therefore Ballmer's decision is not surprising.
I agree with you but only to an extent. It is not possible to reduce the taxes just because you have the crisis to resolve. How do you think the economy/infrastructure/health care/unemployment insurance etc would survive with reduced taxes?
I would say that the first step is decreasing the interest rates (Reducing the borrowing cost, sometimes to zero), which has been already undertaken by major banks in the US...

The US government is in so much deficit that I don't see any other way than to print money after the first step mentioned above. Most of the times the money is created electronically in the banks...doesn't necessarily increase the paper.
Also another reason to print money is to meet the federal reserve limits.
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Old July 26th, 2009, 11:35 PM
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Re: Ballmer Says Tax Would Move Microsoft Jobs Offshore

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Originally Posted by Lumber Joe View Post
If you remember what Reagan did was he reduced transfer payments/unemployment benefits to minimum and in medium term it caused economic boom. The problem of US economy is that it is too much dependent on federal budget. US gradually moves to subsidized economy and this will be devastating in long run. From your priorities list government should fully finance only infrastructure, healthcare and unemployment benefits only for those, who really require it (criteria for this must be very strict).

Printing money or decreasing the interest rates will inevitably cause high inflation. Monetary base increased 4-fold for last 6 months. This money is accumulated in US banks. Imagine what will happen, when they start giving out loans rapidly.
Yep, US is moving to a European style protectionist socialist welfare type of economy. Sucks


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Old July 27th, 2009, 06:00 AM
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Re: Ballmer Says Tax Would Move Microsoft Jobs Offshore

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Originally Posted by Lumber Joe View Post
If you remember what Reagan did was he reduced transfer payments/unemployment benefits to minimum and in medium term it caused economic boom. The problem of US economy is that it is too much dependent on federal budget. US gradually moves to subsidized economy and this will be devastating in long run. From your priorities list government should fully finance only infrastructure, healthcare and unemployment benefits only for those, who really require it (criteria for this must be very strict).

Printing money or decreasing the interest rates will inevitably cause high inflation. Monetary base increased 4-fold for last 6 months. This money is accumulated in US banks. Imagine what will happen, when they start giving out loans rapidly.
What is the criteria to qualify for the unemployment benefits (it is already strict now), infrastructure, health care/insurance etc? There will be thousands of law-suits if you set the criteria too high that a common man cannot aim to reach.
The criteria should be set for lending the new money. Remember the sub-prime crises which resulted because of little/no lending regulations?

Printing money will cause inflation, but only to an extent, (if improperly used), assuming that the new money is not printed solely for the purpose of buying up all the government debt; which will tempt the govt and the other companies to spend too much than they can afford because they have govt to fall back on.

Quantitative easing is a method where the new money is strictly regulated to ease the credit markets. If too much money is created, it is when the hyperinflation takes place. Devaluation of currency is inevitable and people who have diligently saved will find their money devalued.
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Old February 6th, 2011, 11:18 AM
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Re: Ballmer Says Tax Would Move Microsoft Jobs Offshore

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Originally Posted by Lumber Joe View Post

Printing money or decreasing the interest rates will inevitably cause high inflation. Monetary base increased 4-fold for last 6 months. This money is accumulated in US banks. Imagine what will happen, when they start giving out loans rapidly.
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