SAN FRANCISCO (CNN/Money) -
Tech companies and their investors are scratching their heads today. They had hoped the Bush economic stimulus plan would help restart the industry, but now the painful realization is setting in: They got left behind.
Oh sure, the short extension of unemployment benefits and the creation of a $3,000 reemployment stipend for each jobless citizen ("Joy -- more resume classes!") will help out the thousands of out-of-work tech employees, but nothing in the Bush plan will help their former employers hire them back.
And with the Democrats in the minority and needing to appear as the Anti-Bush, there's nothing in their counterproposal -- which leans heavily in favor of individuals, not corporations -- that will help out the tech industry directly.
The item everyone's talking about, the center of Bush's plan, is his proposal to do away with dividend taxes for individual shareholders.
That's all well and good for investors in companies such as R.J. Reynolds and Goodyear Tire & Rubber, which regularly pay dividends, but very few technology companies ever pay dividends. Cisco (CSCO: Research, Estimates)? Nope. Dell (DELL: Research, Estimates)? Nope. Intel (INTC: Research, Estimates)? Nope. Microsoft (MSFT: Research, Estimates)? Ha -- come on. (Two of the very few that do are IBM (IBM: Research, Estimates) and Apple (AAPL: Research, Estimates).)
That's because hardly any tech companies have the kind of bedrock cash flow required to offer payouts to investors. "In general, tech companies are focused on betting the company on the next generation," says Rick White, CEO of TechNet, a Silicon Valley-based tech lobbying organization. "They need every dime they can get."
Some tech companies are re-examining their dividend policy in light of Bush's proposal. Two quarters ago, in its conference call with analysts, Dell said the elimination of the dividend tax could push them in the direction of paying a dividend. Mike Maher, a Dell spokesman, confirmed Tuesday that if the dividend tax were to disappear, "it would factor into our decision. It's something we're looking at."
Joseph Beaulieu, an analyst with MorningStar, says he hopes the dividend plan ushers in more widespread tech dividends, since the move would "force management to think about building sustainable cash flows rather than improving the stock price in the short term," leading to better corporate governance.
That sounds like a solid plan for the long term. But what this economy, and the tech sector in particular, needs is some help -- stat. Unfortunately, two items the tech crowd was hoping to find on Bush's plan aren't on the docket.
|Recently in Tech Investor
First is the reduction of taxes paid by companies seeking to bring earnings made overseas back to the United States. The government currently taxes these foreign earnings "at a punitive rate," says TechNet's White, who estimates that as much as $150 billion in earnings could make its way back to the United States if the tax rate were reduced as an incentive. Some estimates place foreign sales at as much as 60 percent of total tech sales, and "companies could use that right now," White says.
But with "Enron: The Crooked E" playing as the CBS movie of the week, both political parties are understandably hesitant to appear too corporation-friendly.
Second on the dashed tech wish list is the issue of accelerated depreciation for information technology purchases. Bush addressed the issue to some extent with his new plan, increasing the amount a company can write off immediately to $75,000 from $25,000, but many tech insiders were hoping for more, especially since many major tech purchases cost upwards of $1 million.
Also, Bush's increase is geared toward small businesses, not the large companies that do the bulk of the buying.
So while the rest of the economy picks apart the administration's and Democrats' stimulus packages, the technology industry must return to the painful (and so far fruitless) process of figuring out how to fix itself. And you know what? For the long-term health of the sector, that might not be such a bad thing.
Sign up to receive the Tech Investor column by e-mail.
Plus, see more tech commentary and get the latest tech news.