Seven publicly traded U.S. corporations represented on President Barack Obama’s advisory council for jobs and competitiveness — including General Electric Co. (GE) and Intel Corp. (INTC) — have devoted a growing pool of their non-U.S. earnings to investments in other countries.
As a group, multinational companies with current or former chief executive officers on Obama’s jobs council have, over the past four years, almost doubled the cumulative amounts they’ve reinvested overseas, according to data compiled by Bloomberg.
By doing so, companies may be able to take advantage of faster-growing markets or lower production costs, and they can defer U.S. income taxes on profits from overseas sales. Underscoring the difference between corporate interests and the national interest, they’re also investing money elsewhere that could be helping the U.S. economy, said former U.S. Labor Secretary Robert Reich.
“That’s a signal that they are betting less on America,” Reich said. “We’ve got to understand there’s a fundamental difference between the competitiveness of these companies and the competitiveness of America and American workers.”
GE Chairman and CEO Jeffrey Immelt is chairman of the 26- member President’s Council on Jobs and Competitiveness. Members from U.S. multinational corporations include Intel CEO and President Paul Otellini, Citigroup Inc. (C) Chairman Richard Parsons, American Express Co. (AXP) Chairman and CEO Kenneth Chenault, DuPont Co. Chairman and CEO Ellen Kullman, Eastman Kodak Co. (EK) Chairman and CEO Antonio Perez, and former Procter & Gamble Co. (PG) Chairman A.G. Lafley.
Jim Owens, former Caterpillar Inc. (CAT) chairman and CEO, who isn’t on the council, said large U.S.-based companies generally are expanding overseas investments as economic growth rates in emerging markets offer better opportunities. Executives from those companies can offer the Obama administration useful advice on making the U.S. more competitive, he said.
“The reality is that corporations make investments to the best advantage of their shareholders,” Owens said. “The United States government should be in the business of stimulating economic growth and making sure our economy is competitive in the world market. That will attract more investment from U.S firms, as well as foreign firms.”
In addition to the seven companies that have disclosed growing international investments since 2005, Obama’s council includes executives from some public companies that don’t have international sales or aren’t based in the U.S., and some closely held corporations that don’t have to disclose earnings information. Two union officials and two academics are also on the panel.
‘Permanently Reinvested Earnings’
At Xerox Corp. (XRX), where advisory council member Ursula Burns is chairman and CEO, reinvested earnings for 2010 were the same as they were in 2005. AOL Inc. (AOL), whose founder Steve Case is on the council, was spun off from Time Warner Inc. (TWX) in 2009 and hadn’t made disclosure filings for all of the past five years.
Overall, the U.S. public companies represented on the council reported $197 billion of what are known as “permanently reinvested earnings” as of 2010, up from $103 billion in 2006, according to annual reports and disclosures filed with the Securities and Exchange Commission.
Companies can defer U.S. taxes on profits of foreign subsidiaries until the income is brought home to the U.S. parent. Companies that would owe U.S. taxes on overseas profits can avoid payment by reinvesting the proceeds abroad.
Overseas Holdings Grow
The companies represented on the White House council continued to reinvest earnings abroad even when U.S. profits and tax liabilities plunged during the recession.
GE’s earnings reinvested abroad grew to a total of $94 billion in 2010 from $47 billion in 2006, according to disclosure filings.
At the end of last year, 54 percent of GE’s 287,000 employees worked outside the U.S. As recently as Dec. 31, 2005, a majority worked in the U.S., according to disclosure reports filed by the company. The portion of the company’s revenue that comes from U.S. sales fell to 47 percent in 2010 from 56 percent in 2005.
Andrew Williams, a GE spokesman, said the Fairfield, Connecticut-based company “is investing heavily in American jobs and American manufacturing.” In the last two years, he said, “GE has announced the creation of more than 6,500 manufacturing jobs in Florida, Georgia, Illinois, Indiana, Kentucky, Mississippi, New York, Pennsylvania, Texas, and Washington.”
Earnings reinvested overseas give White House advisory council executives a parochial interest in debates over tax laws regarding the treatment of foreign profits, said Paul Hughes, a Bloomberg Government economist who analyzed the tax data.
As Congress and the White House consider proposals to overhaul the U.S. tax code, GE is among companies that have backed a change to a territorial system that would tax earnings from U.S. operations rather than global profit.
Companies including Microsoft Corp. (MSFT), Cisco Systems Inc. (CSCO) and Pfizer Inc. (PFE) are pushing Congress to set up a temporary period when U.S. multinational corporations could bring home overseas profits at a reduced tax rate. A previous tax holiday in 2005 temporarily cut corporate taxes on repatriated earnings by 85 percent.
“Some of the council’s members clearly have strong interests in having another amnesty or moving to a territorial tax system,” Hughes said.
Some companies may be keeping cash abroad in anticipation of another tax holiday.
Kodak repatriated $580 million under the last tax break and is part of a coalition advocating another repatriation holiday. Kodak’s earnings reinvested abroad grew to $2.4 billion in 2010 from $2 billion in 2006.
GE “may prove to be an exception” in potential gains from a temporary rate cut, Hughes said.
In 2005, GE repatriated $1.2 billion when Congress offered the lower tax rate — less than 6 percent of the total it reported as being reinvested overseas in 2003, the last year before the company could plan for the tax holiday.
Intel repatriated $6.2 billion in 2005, more than 88 percent of the earnings it held for reinvestment overseas in 2003. Santa Clara, California-based Intel’s earnings reinvested abroad grew to $11.8 billion in 2010 from $4.9 billion in 2006.
Intel spokeswoman Laura Anderson said that “even with three-fourths of our sales coming from overseas, we continue to invest in our U.S. manufacturing and research development facilities.” The company has announced plans to invest more than $11 billion in U.S. facilities over the next several years, Anderson said.
Citigroup spokeswoman Anu Ahluwalia said the New York-based financial services company “is constantly investing in the United States, our home for almost 200 years.” She said the company has almost 100,000 employees in the country.
Tara Stewart, a DuPont spokeswoman, said “the bulk of our workers and the bulk of our manufacturing is not only here in the United States, it’s staying here.” More than half the company’s workers, and more than two-thirds of its manufacturing base, are in the U.S., she said.