The politics of tech's tax breaks

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A chart prepared by The Wall Street Journal in 2004 shows no relation between increased education spending by states and student test performance. As per-pupil spending went up, some states showed worse performance among students, some showed better, and many remained flat. Washington, D.C., city schools, for instance, had the highest increase in spending over a five-year period but eighth grade reading scores showed no improvement.

"They assume that the state owns 100 percent of everyone's income and assets, and everything that you're allowed to keep is a subsidy," Rockwell said. "That's entirely the wrong way of looking at things."

The "single sales factor" formula
The critics who accuse technology executives of hypocrisy are few but vocal. They point to examples like Microsoft, which calls for more education spending but takes advantage of legal tax breaks.

At a summit with academics in Redmond, Wash., last summer, for instance, Gates credited federal computer science grants for turning around the nation's performance in the area after the 1980s, when it was viewed as prone to "falling behind" other world powers.

Escaping the tax man

There's no way to know how much in taxes each corporation pays every year. But a very rough estimate can be obtained from financial disclosure statements (which use different accounting rules). Here are some examples of companies that may have been able to avoid paying taxes once in a while. But because tax returns are confidential and the companies don't divulge that information, nobody knows for sure.

Apple Computer
Estimate of taxes paid in 2005: $453 million
Including stock option benefit: -$25 million

eBay
Estimate of taxes paid in 2001: $74 million
Including stock option benefit: -$7 million

Cisco Systems
Estimate of taxes paid in 2000: $2.17 billion
Including stock option benefit: -$326 million

Microsoft
Estimate of taxes paid in 2000: $5 billion
Including stock option benefit: -$256 million

Source: SEC 10-K forms and annual reports

Now, with such funding on the decline, "we'll certainly be as strong an advocate as we can be that the government is making a mistake here, and throughout the world I think governments should fund computer science research," Gates said during a question-and-answer session with Maria Klawe, the dean of Princeton University's engineering school.

Former Intel CEO Craig Barrett has made similar pitches during trips to Washington, saying that China and India will pull ahead of the United States without education reform. In an interview with CNET News.com, Barrett said: "The only way to be the most productive society in the world is to lead in new areas of technology" by diverting more tax dollars toward basic research at universities.

At the same time, Intel is among a number of Silicon Valley companies backing a movement that could shave millions of dollars off their tax payments to California, a state that boasts the overall highest tax rates in the country.

In California, where the corporate income tax rate is a flat 8.84 percent, Intel, Oracle, Apple Computer and others are lobbying for a bill that would implement what is known as a "single sales factor" formula for calculating state corporate income tax payments.

Most states give equal weight to three factors--the share of a company's total nationwide investments, payroll and sales that occur in that particular state--when deciding how much tax is owed.

But under the single sales factor formula, they would consider only a company's sales in the state. Translated, that's a boon to manufacturers that make most of their goods in one state but conduct most of their sales elsewhere.

The idea already has caught on in 10 states, including Oregon, where Intel has had operations for 30 years, and Massachusetts, which has one of the highest corporate income tax rates in the nation. Six more states are currently phasing in the new method, but it's far more of a blessing for the companies than for the governments involved, said Mazerov of the Center for Budget and Policy Priorities.

"In virtually all states, it leads to a really substantial revenue loss," Mazerov said, adding that recent estimates from California pegged its potential losses from would-be corporate income tax revenues at $110 million per year. Mazerov's group generally opposes tax cuts and laws that would make it more difficult to raise taxes in the future.

Supporters of the single sales factor formula and other state tax breaks argue that it's a valuable stimulus that encourages building new plants--and creating new jobs--in an economic climate where going overseas is often cheaper.

"Right now it costs an average of $1 billion more to open a leading-edge manufacturing facility in the U.S. versus other countries," said Jennifer Greeson, an Intel spokeswoman. "The biggest difference isn't labor or construction costs, it's taxes."

The chipmaker once cited tax breaks inserted into Arizona's annual budget as one of several reasons it decided last summer to build a $3 billion microprocessor plant there. Arizona's recent adoption of an 80 percent sales factor formula, which stops short of considering only a company's sales in tax calculations but still gives them 80 percent weight, also "created a more positive environment for investment in the state," Greeson said.

State and local incentives valued at $279 billion over 15 years were also a "critical factor" in Texas-based Dell Computer's decision to open a new manufacturing plant in Winston-Salem, N.C., last October, said Colleen Ryan, a company spokeswoman. Dell said it hoped to hire 1,500 employees within five years of the $100 million facility's opening.

"This is a performance-based incentive program. That is, Dell does not receive tax credits unless we meet our job creation targets," Ryan said.

At the time the deal was announced, North Carolina Governor Mike Easley, a Democrat, said the decision made "good economic sense" and estimated it would bring $700 million in net revenue to the state over 20 years.

[Pop4]

Retirment communities and pork barrel school funding policies?

As the renouned John F. Long was carted off to Dell Web Medical's out-patient facility for a prescription and a check up(circa 1970); their were more "Baby Boomers' wrangling their last dime to invest in Superior Development. Now known as the grandfather extention of tulips in 'the field of dreams'.

[kaisdaddy]

The supposition...

...that somehow public schools are going to aid in keeping us as
a nation competitive is a joke! Public schools get more money
than most private schools and do a fantastic job of wasting the
money in the administrative process and producing
underachieving students who can't spell or do basic math.

Of course, the kids coming out of public schools can tell you
exactly what their rights are and why the government should
have more power to tax and regulate "evil" corporations.

The tax breaks for tech companies are bad in my opinion, but
not because it takes money away from public schools. Tax
breaks are always bad, because they are just another form of
government coercion. I don't want the tax code used to make
people do things the government likes and punishes people for
doing things the government doesn't like.

If there is a market for the products of tech companies, then
they will set up shop and produce naturally. If the government
would just stay out of it and not regulate businesses to death,
we would see far more new business startups, with the job
creation and benefits to the community that go along with it.

[Jim Harmon]

Coersion

I have no agrument that spending on schools doesn't necessarily result in better education.

Where my opinion differs is on the whole tax break concept. These companies are going to do business somewhere. If not in your town then someone else's. The way things are going, quite possibly even in another country.

Besides, the whole concept of government IS "coersion." Every law and every ordinance is written to coerce people to behave in the manner that the lawmakers wish. The only difference here is that they're "buying" compliance.

[Frankwrite]

$1 billion difference? I doubt it.

"Right now it costs an average of $1 billion more to open a leading-edge manufacturing facility in the U.S. versus other countries," said Jennifer Greeson, an Intel spokeswoman. "The biggest difference isn't labor or construction costs, it's taxes."

What makes up that average? What other countries? It would be cheaper for Intel to build a plant in Germany or Japan than in the U.S.? Or is Ms. Greeson including countries where Intel would never choose to locate a plant, despite the difference in taxes, because other factors preclude considering that country?

In an otherwise balanced and excellent article, Intel's statement stands conspicuously as a fat target for challenge by the writers.

[shawnlin]

Negative Tax & Free Trade Zones....

Governments in Taiwan, Singapore, Korea, and China often offer negative tax, locations in "free trade zones" (no import tax), and lax environmental regulations. Other perks often include zero or negative personal income tax, relocation expense subsidy, and free tuition for their kids at the exclusive private international schools (that offers diplomas and curriculums equal to and accredited by American/British/Canadian/French/Japanese governments) that are usually worth 10000~20000 USD per kid per year, to expat senior executives working at these local operations.

So one billion difference sounds a bit at the low end for high profile investments.

[Ipod Apple]

Intel's statement stands conspicuously fat

http://www.analogstereo.com/toyota_paseo_owners_manual.htm

[qazwiz]

The facts disprove the storys angle

first: the angle of the story is trying to blame corporations for the poor school performance.

next: it assumes more money will result in more graduates with higher test scores.

while: it ignores the ecconomics of both worlds

I remember hearing (reading, maybe even here) that the school system with the most dollars per student has one of the lowest scores one the standardized tests. this alone blows the story as false and inept

how do the "spelling bee" and "geography test" contestants fare in a check of their schooling? (I remember a couple years back hearing that nine of the top ten "spelling bee" contestants had been HOME SCHOOLED and I believe there are significant similarities to the "National Geograpic Geography quiz" contestants)

pick a national contest based on school subjects, then evaluate the top winners with all winners by type of schooling and the $$$ per student spent in their school district and the teacher/student ratio.

I bet you will find that billion dollar computer studios take a back seat to individulized study taylored on a per student basis in an enviroment that is conducive to study... i.e. no gang activity, respect of teachers, and one subject per year being designed by the student to grab his attention in his chosen field... music, computers, whatever.. but designed to include the major subjects.. reports and math usage (music is VERY mathamatical) and others including public speaking

then we will be able to compete in the accademic arena again

[fakespam]

Former Student

During the 1990s, when I went to school, I absored much of the
subjects shown to me.

Whent the early Internet came about in 1992, I totally absored
that! I started memorizing and studying subjects that I gave a
damn about, and learned much along the way. Even when I think
I've forgotten something, like trig or calc, I see a formula and/or
equation and can spout off the answer or correct process by
which to achieve the answer. In public school it drove my
teachers nuts, and the kept throwing me into basic math classes
at the beginning of every year, only to be moved to AP Math
when the basic teachers got around to talking to me. I never
believed the way math it taught, that the process by which the
problem is solved is more important than the answer thereof.
*** is that? When I see a math problem, I do the answer. If, as a
part-time programmer (for fun) I were to simply do the process
of the code, I'd never have the final result of the coding, ergo,
no program to use in the end.

So, I'm competed in those spelling and geography bees. I usually
just bowed out at the beginning, even though I won every year
on the school's behalf. Whoopee. When, in English classes, I was
always accused of plagurizing because my research, thanks to
the Internet and early AOL, was always better than the average
student. I got hell. Finally, I just took a course where I showed
up for about two to three periods a day and did the rest of the
classes at my own pace at home. When the school held a student
of the month competition, I won every time by the sheer amount
of work I turned in. Still, I was bored. Then, out of nowhere, the
school said my credits were too high and no fair to the other
students, and took away half of them. To hell with that, I went to
get my GED and enrolled in community college, then various
universities since. Business, History and Economics are my
majors with too many minors to give a damn about. Now, it's
nightschool to finish up to my Masters and Doctorate.

Let's face it: public schools suck. Kids go to school to screw,
socialize, deal drugs, whatever. They don't go to learn. This
writer of the posting (not the article) touches on that.

When you forced something on somebody, expect them to
perform less, because it's against their will.

PS It's BS college really means anything, when almost every
manager I deal with in a drop-out or ex-Service Man, making a
nice income. (Not rich, though some are.)

[qazwiz]

The facts disprove the storys angle

first: the angle of the story is trying to blame corporations for the poor school performance.

next: it assumes more money will result in more graduates with higher test scores.

while: it ignores the ecconomics of both worlds

I remember hearing (reading, maybe even here) that the school system with the most dollars per student has one of the lowest scores one the standardized tests. this alone blows the story as false and inept

how do the "spelling bee" and "geography test" contestants fare in a check of their schooling? (I remember a couple years back hearing that nine of the top ten "spelling bee" contestants had been HOME SCHOOLED and I believe there are significant similarities to the "National Geograpic Geography quiz" contestants)

pick a national contest based on school subjects, then evaluate the top winners with all winners by type of schooling and the $$$ per student spent in their school district and the teacher/student ratio.

I bet you will find that billion dollar computer studios take a back seat to individulized study taylored on a per student basis in an enviroment that is conducive to study... i.e. no gang activity, respect of teachers, and one subject per year being designed by the student to grab his attention in his chosen field... music, computers, whatever.. but designed to include the major subjects.. reports and math usage (music is VERY mathamatical) and others including public speaking

then we will be able to compete in the accademic arena again

[shawnlin]

Eliminate Corporate Income Taxes...

... and apply mandatory across the board wage increases for all US employees.

No matter now you change the tax codes, multinational companies will be able to get away with large amounts of taxes through the use of offshore shell companies. It is much harder for individuals to do that.

So perhaps its easier not to tax companies and force them to pay their employees, who won't be able to get away with taxes as easily, more.

[fakespam]

Supply and Demand

No, no "across the board" wage increases. Let those who earn
the right to more money get more money.

Since companies can't be trusted, enforced the min. wage, but I
feel, after a certain amount of accountability promoted to
something, salary and comission come into play.

After all, nobody trusts a used car salesman anymore that a
short-order cook.

And don't tax the employees, because they're the consumers
you need to buy your goods. If they're taxed, less to spend. Less
to spend, company earnes less.

[swear word], taxes, no matter where it falls, will affect and
effect everybody.

[fakespam]

Common Sense

A primitive tech company of sorts, William R. Hearst's newspaper
empire crumbled when Comrade Roosevelt illegally enforced
income tax on all corporations.

Before income tax was enforced, most of the revenue for the
Feds and local govs came from a very high tariff on foriegn
goods. It worked for over 100 years, till some Comrade of a
President created Socialism to employee people during the
Depression. In retrospec, the companies were actually on a
rebound in 1932, before being forced to pay an income tax.
Once Roosevelt got into office and re-wrote the 16th
Amendment's original provisitions, the economy slipped further
into the Depression. The result was economic collapse in places
like Germany and Italy, and you should know the rest of this
story.

Nobody is totally free of taxes, but the current tax structure
makes about as much sense as eating dirt for dinner. Do as they
do in Hong Kong. Lazy-Fair (don't know real spelling, but those
who study economics or business know what I'm getting at)
governance of business creates robust economies and healthy
companies.

I say, then, let's abandon taxes, raise the tariff on anything not
grown in the US or made in the 50 states and PR (exluded the
Northern Mariana Islands in this, because of the totally corrupt
status of gov over there).

As for things like roads and education . . . let the religions
handle education, let the roads become like a utility, so forth
and so on. Nowhere in the Constution is it stated that any gov.
in any capacity is allowed to make roads, run schools, hospitals,
so forth and so on. To do so is un- American and Soviet in
nature. Can anybody tell me why I need a license and pay
property tax? Because the Marxist thought say every I do it a
privlidge at their choice. Strange, the Constitution says nothing
about licenses and in Article 18 forbids direct taxation of the
citizen. Hmmm . . .

Thomas Jefferson said something along the lines if the
Constitution directly forbids it, it can't be done, and if it's not in
the Constitution it can't be done.

Give tech, and other industries, all of the tax breaks they want.
To hell with things like public indoctrination institutions . . . I
meant, schools.

My kids are fine at a Catholic school, and after 8th grade, home
schooling for them.