Government strangles high-tech growth

Hon. Ernest Istook Former Republican Congressman
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The CEO of Intel has joined the ranks of those labeling big government as the cause of our economic slump, not the solution.

Paul Otellini says it already costs Intel an extra billion dollars to build a microchip plant in the U.S., rather than overseas.  In his illustration, it’s an extra 25% to create a $4-billion facility.

He told this to an Aspen gathering of the Technology Policy Institute, adding that government is killing America’s leadership for jobs of tomorrow.  Otellini said, “We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case.”

While promoting education, research, favorable trade policies, and broadband expansion, he made it clear that tax policies are key — policies that are the opposite of what Congress and the Obama administration are promoting:

“Take factories.  I can tell you definitively that it costs one billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States,” Otellini said.  “The rub: Ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don’t impose.”

How do we get companies to expand in America rather than overseas?  The Intel CEO explained, “Adjust the U.S. corporate tax rate to a rate that is competitive worldwide. At Intel, we generate 75% of our revenue and much of our profit abroad. The U.S. tax treatment of that income makes it extremely expensive to repatriate that profit and invest here.  If our tax rate approached the rest of the world, corporations would have a natural incentive to invest here given many of the natural advantages that exist in this country.”

He suggested lowering the rate to 25%.  That reduction echoes a Heritage Foundation proposal in its “Solutions for America,” which recommends, “The U.S. corporate tax rate should be set at or below the Organisation for Economic Co-operation and Development average of 26% to eliminate the incentive to move businesses and jobs overseas.”

Otellini also stressed the need not to penalize companies when they repatriate their foreign earnings and bring them back to the U.S.  He’s joined by many others in the high-tech community who warn that what some call “closing tax loopholes” actually hurts the ability to create jobs in America.  Sybase CEO John Chen has written, “President Barack Obama has proposed to raise taxes on the international operations of U.S. businesses. There is one thing the proposal can effectively achieve: make the United States an even less friendly place to do business, and thus delay the economic recovery. . . Although intended to keep investments and jobs from leaving our country, in the long run the measures in the proposal will drive investments away, and kill jobs in the U.S.”

The high-tech sector’s complaints are part of a growing chorus from job creators who describe how Washington is smothering economic growth.

The Business Roundtable sent a 50-page letter to the White House describing how Obama’s agenda is stifling growth and killing jobs. A GOP letter complained of 191 intended rules and regulations that EACH would impose $100-million or more of growth-killing cost burdens on businesses.

Worried about what their own government is doing to them, businesses continue to sit on a $1.8-trillion cash stockpile, holding it back for the extra costs they face from more taxes and more regulation.

The White House happy talk of a “Recovery Summer” grates like nails on a blackboard.  That rhetoric collapses with news that second quarter growth was at a 1.6% annual rate — less than half the first quarter rate and well below original White House numbers.

To put America back to work, it’s time to heed those who create jobs, rather than politicians who create more government.  Intel and others should not face a $1-billion hurdle to expanding in the USA instead of overseas.

Former Congressman Ernest Istook is a distinguished fellow at The Heritage Foundation.  This article first appeared at foundry.org.