Deficit Reduction: Gary Shapiro, President & CEO, CEA on C-SPAN's "The Communicators"

This week on The Communicators, Gary Shapiro of the Consumer Electronics Association talks about proposals that many technology companies think will help the US economy.

Well, recently a group of technology associations sent a letter to the Deficit Reduction Committee asking for certain measures to help strengthen the US economy. Gary Shapiro is chairman and CEO of the Consumer Electronics Association. He is our guest this week on The Communicators. Gary Shapiro to talk about some of those issues that tech companies see as vital to the U.S. economy. Mr. Shapiro, one of your first recommendations was an update of the tax system. And in your letter to the Deficit Reduction Committee, you write that first and foremost, America's corporate tax system is globally uncompetitive. And you go on to say that we, the U.S., should take immediate steps to encourage U.S. businesses to repatriate the approximate $1 trillion in accumulated foreign earnings that are locked outside of our country?

Absolutely, Peter. Thanks for having me. You know, as president of the association, I have— we have 2,000 technology companies, and many of them do business overseas, and they have money which they just leave there because the United States has this policy of, first of all, having the second highest corporate tax in the developed world, and second of all, taxing all international sales, which almost no other developed country does. So we pay so much, so every company then is almost forced to leave their revenue overseas, overseas, and they invest it there, they build factories there, they hire people. It makes no sense. If they could bring it back here and be taxed at a lower rate, and frankly it could be tied to something like hiring people or capital investment, it would spur the economy and not cost the Treasury a penny.

What do you mean when you say territorial tax system in your letter?

Well, territorial means that Almost every other developed country in the world, you pay taxes on the money you make in each country you make it. The United States taxes your global income, so essentially you're being taxed twice for the same income. It makes the US companies very anti-competitive and literally forces them to leave their money overseas. And this is over $1 trillion of money that's parked overseas. It doesn't help the US economy. So what the thought is here, when we need some economic stimulus, we could have this money come back here pump back into the economy at a lower tax rate, say 5 or 10%, and even tie it to jobs or capital investment. And that makes sense because the territorial tax, the higher tax rate together are a deadly arsenal which makes us noncompetitive as a country.

Brendan Sasso is a technology reporter with The Hill, and he is joining us this week on The Communicators.

Thank you. So Senator Carl Levin had a report last month about tax repatriation, a similar policy that was enacted in 2004. And according to this report, this didn't actually help much. A lot of the companies that took advantage of the policy ended up using the money to increase executive pay rather than investing. So is this— would this be different than what happened in 2004?

Well, Brandon, that report is one of many reports, and certainly, you know, the unions are opposing this for reasons that I can't figure out, because it could be tied to more jobs, it could be tied to capital investment. It's an easy thing to do. They're trying to position this as a tax giveaway because it's scored as government, as if those companies are going to eventually pay tax on that money. They won't. They're not going to bring it back to the United States. And the important thing is we recognize that these companies are American companies. They're making money. It's a good thing. They're owned by mostly U.S. shareholders. And we should want them to succeed. It's very difficult to figure out whether a company's putting something back into dividends or putting it back into capital investment or hiring. but you could tie it. It's an easy bipartisan solution. In fact, Congresswoman Shelley Berkley, a Democrat, other Democrats and Republicans are now proposing that type of policy change.

Well, Mr. Shapiro, wouldn't this be, though, another piece of piecemeal legislation rather than an overhaul of the tax system?

That's true, and that is one of the concerns I've heard expressed by both sides of the aisle, that indeed this could be piecemeal, and we want to deal with long-term. This is a short-term economic fix that makes sense. We do need the long-term thing, which is the territorial portion of it. Let's change the whole tax system so you just pay on the profits you make in the country you make them. And let's also deal with all the other issues, the second highest corporate tax rate in the world, the complexity of the corporate tax rate, which is overwhelming, the perceived unfairness of it, the loopholes, all the business giveaways. That's pretty important.

A little bit more on the tax issue for technology groups. This is another recommendation made to the Deficit Reduction Committee. We must reduce the tax rate, simplify the code, and strengthen incentives for job-creating activities such as the R&D tax credit and transition to a competitive territorial tax system. But go back to the R&D. Why has that never been made permanent?

Well, that's a— it's a political issue, frankly, because it's temporary. In that way, the members of Congress that do it could always come back to the tech community and say, we'll do this for you. And it's unfortunate because it doesn't allow the predictability you need as any business planner for the long-term future. You know, but if there was total tax overhaul, I would I bet most tech companies would say, "We don't need the R&D tax credit. We don't need that because there's a more rational tax system here." The R&D tax credit, I should disclose, is not something that my association has ever taken a position on. We have never asked the government for any money for ourselves in any way, including the DTV transition. So, uh, I'm a little uncomfortable talking about it, but I recognize why individual companies and other associations want it.

Well, so obviously, this letter was to the super committee, and their job is to reduce the deficit.

Deficit.

So I'm wondering how measures that might reduce taxes would in fact be something the super committee should take up.

Well, in fact, in the overall premise letter, we're talking about strengthening the U.S. economy. Now look, when you're in a terrible situation the way we're in as a country, you have 3 choices. You can raise taxes, you can cut spending, and/or you can grow the economy. Growth comes from innovation. And if you have a growing economy, a lot of the other issues go away. And so our view is that the entire political system, our nation, should get around the consensus that President Obama laid out in his State of the Union address, which is that we are an innovation economy. Now, the tactics he laid out we may not agree with, but when it comes to the various things that make up innovation, a lower deficit, predictable taxes, trade, good strategic immigration policy, spectrum for wireless broadband, those are the things that make sense.

Well, I want to pick up the last thing you said, spectrum for wireless broadband. And so there's talk— the chairman of the FCC has mentioned the spectrum crunch, that there's not enough— there aren't enough frequencies to be used for wireless devices. So I'm wondering if you can explain that a little bit. Why do you think there should be more spectrum for wireless devices?

Well, we have fundamentally changed in terms of technology as a world and as a country just in 5 years. 5 years ago, there was no smartphones. You know, beginning with the iPhone and now many other phones. Those phones use 25 times the data stream that the phone did 5 years ago. Tablets like the iPad— an iPad uses up to 120 times the data stream. And these products have become the engine of our economic growth with the apps developers, with all the new economic activity around them. And people expect— and it is now a matter of national policy, bipartisan— that we want wireless broadband. It is essential. We need the spectrum to do it. At the same time, there's government spectrum which may be available, and there's the broadcaster spectrum, which is only few— fewer than 10% of American homes are now relying on that free over-the-air broadcast signal. So the proposal the FCC had, which we support, the President supported, it's bipartisan supported, is voluntary incentive auctions by the broadcasters of some of this spectrum. We're not saying get rid of over-the-air free broadcasting in the localities, but there are lots in each station in each market. There's plenty of spectrum available. And give them the right to auction off that spectrum through the government to raise money. And the estimates of raising money are anywhere between $15 and $40 billion to the Treasury, a one-time benefit. And then there's economic activity, there's wireless broadband. But it is a mathematical certainty that as time goes on— and this is long-term— we will not have our devices working the way we expect them to because there simply isn't enough wireless broadband available to support the full-motion video so that I could watch C-SPAN when I'm on a train.

Uh, Gary Shapiro, though, don't the wireless device makers also have a responsibility to use spectrum more efficiently?

Absolutely, and there's every incentive to do that. And, and of course, solutions are being developed, like relying heavily upon Wi-Fi in local areas. Once you get across the big distance, you go to a, a local Wi-Fi network. But still, mathematically, as now about half Americans have these smartphones, and the tablets will be the hottest product of the holiday season, and we anticipate growth for years to come, When most Americans have these tablets and smartphones, we need a system that will support them.

And in fact, in your letter to the Deficit Reduction Committee, your consortium writes, it's important to make more spectrum available for mobile broadband, including the benefit of unlicensed uses. And what do you mean by unlicensed uses?

And unlicensed— OK, you bid for auction like a Verizon, an AT&T, maybe even a Google would bid and get that, all those billions of dollars to the government. But there's a portion of spectrum we use today that all sorts of innovative products come out of that no one predicted. For example, the garage door opener is one. Cordless telephones is another. There's all sorts of spectrum that people come up with innovative products that we come to rely upon. And that is— anyone can produce something. There's various standards in terms of being a good neighbor and accepting interference. But that produces tremendous amounts of innovation that is very important. So we're saying, Save a little slice for unlicensed uses where the government would not get money. That will spur economic activity, growth, and jobs.

Brendan Sasso.

Shouldn't, um, the companies that might take advantage of unlicensed spectrum, say Google or Microsoft, uh, why shouldn't they have to pay? Since we were just talking about how valuable spectrum is, why shouldn't those companies that might create new innovative products pay just like AT&T or Verizon would pay to, to have spectrum?

Well, the way it works is when you pay, you get the exclusive use. With unlicensed, nobody pays. It's like a parkland that the government owns. Everyone can go into that parkland and play. Everyone benefits. Any entrepreneur with an idea can enter the space without barriers to entry. Frankly, I'm not worried about Google and AT&T and Verizon. They can get their essentially monopoly use of spectrum. They own it, which is fine. They control it. They could do a lot with it, and they could use it for what we've been talking about. Unlicensed users are new users in Any entrepreneur can jump in and produce so many great products out there, whether it's family radio so you can communicate in a shopping mall or at a concert, or as I said, the garage door opener, which many of us rely upon.

So there are a lot of different parts of Congress. You have the super committee. There's a separate bill dealing with spectrum. And so I'm wondering how you think that this is actually going to get done. What do you think is the most likely avenue? It was also in the president's jobs bill. that's looking less likely now.

But—

so obviously this letter was to the Super Committee. But is that the main way you think this will get done?

Well, the important thing is it has bipartisan support. There's a consensus about it. Even the broadcasters said they're willing to do it under certain conditions. I mean, they don't really own the spectrum. They get multi-year licenses. They never paid for it. They'll get money from that even though it's not something they own. But look, whether the Super Committee is going to resolve the bigger issues of the country is— Nobody knows at this point. If they do, this is almost certainly going to be in there. If they don't, we have a lot of other issues as a nation. But along the way, this is a solution that helps cut the deficit and spur economic growth.

Gary Shapiro, are the tech community needs different than the larger business community?

That's a great question. I think the tech community might have more of a need for the brightest people on the earth. and that's what's made this country great. We've attracted them traditionally since our birth until about September 11th, and we had that disaster and we shut our doors. And now it's very difficult for tech companies to get the brightest people. We're very not welcoming to them. We shut the door on them. And they are the growth engines of the economy. This is where maximum growth occurs is with technology. With technology, we do have needs. We have needs for quick capital, flexibility. You have to be able to move people around. It's not a very pro-union environment because you need to assign someone, you need to make— give them the prospect of making a lot of money or just moving to the next job. You know, we're blessed that this is a country where you could fail and it's not— it's actually a badge of experience, not a badge of dishonor when you're doing it in business. So we have a questioning nature, we have a First Amendment which protects us, we have every ingredient we need to be the most innovative country in work in the world and that should be our strategy as a country. So the tech community is the pinnacle of that. I would include biotech in that. I would also include, frankly, the creative community in that, the content world, the music industry, the motion picture industry, the publishing. We are the world's innovators, and that is our perch, and we should stay there. And so yes, we're unique, but no, this is who we are as Americans. We solve problems.

Back to the tech community's letter to the deficit Budget Reduction Committee. You have called for, with regard to visas, increase the number of employment-based visas for highly educated workers, award permanent visas to foreign-born students who earn doctorates, and repeal the annual limit on the number of applicants per country.

Absolutely. We traditionally have attracted the world's best and the brightest. Indeed, all our forefathers came here for a better life with nothing to lose. We've been getting the students. Actually, education is an export. They're a big export of ours. That's what we do. But we get these really bright people and we educate them in math and science and information technology. We give them master's degrees and PhDs and then we kick them out of our country so they become competitive with ours. That's crazy. And Republicans and Democrats also agree on this now. That is not a good policy. We just have to get this legislation through which allows us to give them a path to citizenship. And we have to be strategic in our immigration policy. All the discussion and debate is about illegal immigration. That's not what's at issue. What's at issue is who do we want here? We want bright, we want entrepreneurial people, we want people who are going to be great citizens and contribute to our economy. So there's some great proposals out there, bipartisan, which say if someone's willing to invest a certain amount of money, hire a certain number of people, or if they're seriously educated— because look, our countries like Microsoft and Google and every internet company, which we dominate the world in, they want to hire people. Why should they have to open up a facility abroad to do that? Yet our immigration policy, our tax policy, our trade policy increasingly encourage them to go abroad rather than create jobs here.

Well, I want to go back to one of Brendan's earlier questions. These are a lot of different issues but not necessarily deficit reduction issues. What was the purpose of including visas and other issues in your recommendations to the Deficit Reduction Committee?

Deficit reduction will come from one of three ways: raising taxes, cutting spending, or economic growth. And we must be about economic growth. We have stalled economically as a country. It is hurting us. Indeed, a lot of companies now and venture capital is going abroad because there is not growth in the United States. We must be a growing economy. A growing economy will solve our jobs problem. It will go a long way to solving our deficit problem. So we should be focused laser-like on growth rather than focusing on saying business is bad and attacking business. We have to say business is good. We want employers here. We want jobs here. We want innovation here. And that's what this is about. And if we could grow economically— look, it's not only the federal government, state governments now, every one of the 50 state governments assume in their pension calculations that we will grow at 8% a year. That is insanity. We're not growing at 8% a year. We are facing a huge financial challenge in this country. We have to try to get to that 8% growth rate. We're not doing it under today's policies. And whether it's Democrat or Republican, we better get together and start getting these policies which will allow economic growth.

You're watching C-SPAN's Communicators program. Our guests this week, Gary Shapiro, chairman and CEO of the Consumer Electronics Association. Brendan Sasso is a technology reporter with The Hill newspaper.

Staying on the immigration issue, unemployment is still at 9%. A lot of people are having trouble finding jobs, even people with degrees. So what do you say to the person who, you know, just invested in their education, they just graduated with maybe a degree in math or engineering, and they can't find a job in these companies want to hire foreign workers?

Well, first of all, that there are several million jobs available in tech companies and other companies where we do not have the experienced people or the people with the right degrees we need, whether it's in precision engineering or manufacturing or design. So I'd say, I'd first of all go to any college student or high school student and say, look at the job help wanted, start gearing yourself. If you have a liberal arts degree or something like that and you can't get a job, It's because you invested in the wrong subject and it doesn't make sense. And, and maybe it's good for society, those degrees, but we need skilled people. There's a lot of jobs that are open. To those people that are saying, "Foreigners taking my job," that's really not the case for the most part. Those jobs are going overseas because our policies encourage them to come overseas, but there isn't an American employer that I know who wouldn't rather hire Americans in the United States. They're citizens, they have kids and grandkids, and they want a better country in their future. So they'll always give the job to the American over someone from overseas.

So switching topics a little bit, the letter does mention briefly protecting intellectual property as an important issue. And so obviously there are bills in both houses of Congress now, Protect IP, and so you, though, oppose those bills. And so I'm wondering, why are those bills not the appropriate way to protect intellectual property?

Well, intellectual property patents, trademarks, copyrights are very, very important domestically and internationally. When we're dealing with countries like China, we have to recognize that we have a different philosophy and we have to do everything we can to recognize they just can't make copies of our trademarks. They can't rip it off, our patented products and our software, and just steal it. That's wrong. The legislation you're talking about is aimed at pirate websites, which are horrible and wrong and should be stopped. It's not that we oppose the principle. We oppose the fact that all of a sudden you're giving any private party that claims they own a copyright the ability to shut down a website without any process protections, without any government. You're creating new private rights of action. You're basically shutting down the internet in a very large way. Look, this year the government shut down 50,000 websites aimed at— because they were aimed at one child pornographer. 50,000 legitimate websites were shut down for a few days with a big sign saying, shut down because of child pornography. Those are the kind of mistakes you want to avoid. You want to avoid legitimate businesses from being shut down without process protections. And that's what we're saying. These bills are good, but let's modify them so there's process protections that Americans are accustomed to are in place.

So what would the changes need to be in order for you to support these bills?

Well, what we need to see is— let's go back to the drawing board. We've been excluded from the discussions all along. The content community, which is very, very politically powerful, has gone to their favorite members and they've just dropped legislation in. And what we need to see is process, due process. You have a right to answer, to respond. You have to also have a process to make sure you're shutting down the right website. You have to have a process so you're not shutting down thousands of websites by going into the internet itself. We don't want the internet shut down. And that's why Democratic congresswomen like Zoe Lofgren and also Senator from Oregon, a Democratic senator, as well as Republicans have said these bills are absolutely unacceptable for the future of technology.

What do you— go ahead, Brenda.

My understanding is that the bill does have some sort of appeals process where if your website gets shut down, that you can appeal and say that, you know, this is a legitimate website. Is that not enough?

So, your website is shut down, you're eBay or Amazon and your website is shut down and you have the right to go through a government process for an appeal. And meanwhile, your customers are lost for how long? I mean, when BlackBerry has an outage, it affects millions of people. When a website has an outage, it can mean the life or death of that company.

Gary Shapiro, you mentioned the content community. What do you mean by that?

The content community is Hollywood, the music industry, and all these— basically, they live and die by government regulation. Government started out with a monopoly where a patent was equal to a copyright, you know, less than 20 years. And somewhere along the way, we've lost sight of it because of phenomenal lobbying. The content copyright is almost perpetual. It's about 100 years. It's been expanded 13 times in the last 40 years. The penalties are outrageous. I mean, people go to jail. If you rip off a CD on your computer, the prison sentence and everything else is so much more than if you actually physically steal a CD from a record store. And then, so the content community is a phenomenal fundraiser, phenomenal. And they play in the Judiciary Committee. The members of the Judiciary Committee deal with life and death issues, abortion, capital punishment. They don't deal with money issues. So they get a phenomenal amount of money from the content industry lobbyists. And the tech industry really isn't that good at fundraising, frankly. And a lot of them vote on the basis of their social issues. So all of a sudden you have Republicans and Democrats getting all this money from the content community. And they basically, they have a very good way with themselves in the Judiciary Committee.

Gary Shapiro, another piece of legislation that's making its way through Congress is Representative Mary Bono Mack's data security breach legislation. What's What's the CEA's position on that?

Actually, we don't have a position on that. Obviously, as we go into the cloud and as we give up more of our information as consumers, these are really critical issues which are coming forward. How much of your information do you own? What is the responsibility of a company that uses it? What happens as we proceed along? Because there's so much more happening in the application world about gathering information about yourself, your whereabouts, what rights you have. But I think in a reasonable way, public policy can deal with these issues. When the credit card was first introduced, there was great concern about losing everything. And Congress did something really smart. They said, "You know what? The most you'll ever lose is $50 if you lose your credit card." And all of a sudden that unleashed this great use of credit cards. It helped the economy, financial transactions. It made the passage of actual dollar bills a little bit— a lot less. And it's helped society. I think we're going to find our way out of a lot of these privacy issues recognizing there's a It's a trade-off between someone knowing about you and them serving your needs. You can't get a custom suit if the tailor does not know your size. And sometimes you have to give up your size.

Brendan Sasso.

So my understanding is that the data breach bill is focused mainly on financial information. So if somebody hacks into a website and steals your credit card number. What about broader privacy issues? There's talk of some sort of broader privacy protections. What do you think about that legislation?

Well, there's lots of proposals out there, and they're critically important issues. And my hope is, is that we work through them in a logical way where we agree upon the facts, and we agree upon the goals, and the conflicting interests. The interest in a person protecting their privacy, especially medical privacy, versus the interest of society greater. I mean, one of the things that— I know everyone hates the healthcare law, probably including me, but there are some good things in there. And one of them is that you share information, doctors share information about actual things that happen on an anonymous basis with patients so we get a database of what really good treatments are, which we don't have now. So there's always a trade-off between societal needs and individual needs, and we have to recognize that government plays a role in addressing the conflicting of interests there.

Gary Shapiro, back to your letter. We recommend you write greater investments in those activities with clear economic benefits because of their transformative potential. Programs that support basic scientific research, improve our infrastructure, protect our intellectual property, and create a 21st century workforce are smart investments. Smart investments.

Absolutely. So take our university system, which is the world's best. The government pours a lot of money in there for basic research and development. It works out very positively for industry as well. There's a lot of work between the university community and the private investment community, and it's produced some great things. But there's only so much available, so we have to be very careful. We have to say what's That's the difference here. That doesn't mean we're embracing give to companies like Solyndra and, you know, be the venture capitalist as government. That's not what we're talking about. There's a difference between basic research and development and applied research and investing in companies. If there is going to be government investment, it should be at the highest level of basic research, in my view. Also, when it comes down to an educated workforce, the government plays the role. Do we want every person to go to college? I would argue we don't. Germany is a great example. What they do is they have essentially two tiers. They have those that are highly skilled people with vocational education, and they produce great cars, great health equipment, and their strategy as a country is precision manufacturing, and it's working. And the people have high status, and they get paid a lot, frankly. They also have educated people and universities and things like that as well. We have, for some reason, this philosophy that everyone has to go to college. It doesn't make sense. It doesn't even compute. And if we want manufacturing in the United States, we have to change what colleges are doing. So I think the government could push people along. They do provide funding and say, let's put this into the type of government programs which make sense for our future.

Brendan Sasso.

The letter mentions improving the government's IT, information technology. And so it claims that the federal government can reduce spending by more than $1 trillion over the next $10 million just by upgrading IT. How is that possible?

Well, certainly technology itself, the benefit of technology is that it does save money in the long run. Companies of their own free volition invest in technology so they can perform better, they can be more efficient, they can provide better customer service, they can get more customers. The government has to do likewise. At the state level, various states have done this. The experience I have at Virginia Department of Motor Vehicles is exceptional because they've used technology very well. Virginia as a state has said we are going to invest in technology, be a pro-business state. It's bipartisan. Every governor has done it for the last 20 years. The legislature does it. It works. So our federal government, I think, can do the same thing and say we have tremendous amounts of information. We're providing government service, whether it's to our veterans, our Social Security recipients, Medicare, Medicaid. Let's invest in the IT infrastructure to, to provide better service. And that's what we should expect as a country. We should be there advanced. We're the most technologically advanced country in the world. Why can't our government be?

Mr. Shapiro, you've been around this town for a while. The Super Committee is due to report out in about 2 weeks. Realistically, what are the chances of any of your recommendations being included?

I think the chance of the spectrum, uh, is, is well over 90% if they do have a recommendation. If, um, on the other ones, this is more of a statement about innovation and what's important in the future of our country. Whether the super committee goes into the area of promoting economic growth, we'll see. I think the odds of the super committee doing something are anybody's guess, or whether they do nothing or something or partial something and leave a lot to next year to figure out by the Congress, we'll all see.

And finally, Mr. Shapiro, the Consumer Electronics Show is well known in Vegas every January. Can you give us a preview?

Well, the International CES attracts 140,000 people from around the world. It is the Super Bowl of innovation. We are going to have a larger show than we've had last year, lots of people and more things introduced and great things whether in cars or in applications or in tablets or you name it. And this is— it gives you hope and excitement about the innovation which is occurring which is making the difference in our lives. It will be spectacular. Hope you're there.

Gary Shapiro's group is the Consumer Electronics Association, several other groups signed on to this letter to the Deficit Reduction Committee. We are going to put that on our website. You can read it at cspan.org/communicators. Gary Shapiro is chairman and CEO of the Consumer Electronics Association. Brendan Sasso is a technology reporter with The Hill newspaper, thehill.com. Thank you, gentlemen.

Thank you. Thank you.