Tax breaks for jobs on Silicon Valley's agenda

U.S. Commerce Secretary Gary Locke has an agenda when he pays a low-key visit to Silicon Valley on Thursday. So do his hosts.

Locke's stated purpose, according to a department official, is to promote President Obama's National Export Initiative, which intends to double U.S. exports over the next five years while creating millions of U.S. jobs in the bargain.

Tax breaks for corporations that promise to help Obama achieve that goal will be the topic du jour for Silicon Valley CEOs with whom Locke is scheduled to meet behind closed doors.

"We're looking to have a dialogue with the secretary about the economy and jobs, and also making sure corporate tax policy is conducive to American companies being competitive in the global marketplace," said John Noh, a spokesman for San Jose network equipment manufacturer Brocade Communications Systems Inc., which is hosting Locke's visit.

Brocade CEO Mike Klayko invited Locke to visit his company after meetings he and a Silicon Valley Leadership Group delegation had in Washington last week. The delegation's proposal to significantly reduce the 35 percent tax rate on U.S. companies' repatriated foreign earnings, to encourage investment back home, was much discussed with lawmakers and Obama administration officials and, reportedly, quite favorably received.

Obama's kind of company: Klayko was traveling on business and not available for comment, but Carl Guardino, CEO of the Silicon Valley Leadership Group, said, "Brocade is exactly the kind of company Obama has in mind."

By that, Guardino meant a midsize tech company that sells 65 percent of its products overseas, while the majority of its 5,000 employees are U.S.-based, mostly in the Silicon Valley, including 900 hired since 2009.

During his visit, Locke will be squired around the company's new, $325 million headquarters in north San Jose, which houses approximately half of Brocade's workforce, and is the centerpiece of a multiuse development that created an estimated 6,000 jobs in the area, Noh said.

No doubt Locke will be told how much better Brocade could do (rumors of an IBM Corp. takeover bid notwithstanding) - if it had more incentive to bring some of its foreign earnings home.

Caveat emptor: President Obama appeared to open the door to the tax-reducing idea on Monday, during a meeting of his economic recovery advisory board, which numbers UC Berkeley's Haas School of Business Professor Laura Tyson among its members.

"We would be very interested in finding ways to lower the corporate tax rate so that companies that are operating overseas can operate effectively and aren't put at a competitive disadvantage," he said.

Obama insisted that any proposal be revenue neutral. We trust he will also insist the tax savings be used for their intended and promised purpose: job creation. As noted, that didn't work out the last time there was a profit repatriation tax "holiday," and many companies stuffed the savings in their pockets.

What U.S. corporations are currently doing with their existing mountains of cash - $1.6 trillion, according to the New York Times - should send up a big red flag. "Few of them are actually spending the money on new factories, equipment or jobs," the Times notes.

Fabulously wealthy multinational Microsoft Corp., for example, just raised $4.75 billion in a bond offering at an "ultralow" interest rate, much of which is going toward share buybacks and the like.

"Borrowing new money on the debt markets is now cheaper than bringing its own money back from overseas," a Microsoft analyst at Moody's told the Times (sfgate.com/ZKJZ).

Moral of story: Take note. Don't get fooled again.

Blogging at sfgate.com/columns/bottomline. Facebook page: sfg.ly/doACKM. Tweeting: @andrewsross. E-mail: bottomline@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/10/06/BU3M1FO7SN.DTL

This article appeared on page E - 1 of the San Francisco Chronicle

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/