Rep. Issa says permanent tax change needed to bring back Apple's overseas cash
Hello everyone, I'm Ian Schuren Executive Director at CNet News and joining me on stage is Republican Congressman Daryl Iso.
He's one of the most outspoken members on tech issues on the Hill.
He was an advisor to President-elect Trump on tech issues.
Thank you for coming
Thanks for having me and thanks for making CES Show the mergers show of its kind anywhere in the world by two times.
It is a crazy world show.
Every time I go to other shows and I think, " my gosh CES is that march bigger." [LAUGH] Every time.
There is only one show that has similar square footage.
It's over a million square feet And it's a place where they show off earth moving equipment.
Yes, also here in Vegas.
Yeah, it's big, but it's not big in the same way.
Yeah, and it's not every year.
And it's not every year.
Yes, so we're going to start a little bit talking about President-Elect Trump because, it's just kind of one of the things in the room.
We've heard relatively little from him on tech.
And I was hoping maybe you could give us a little bit of insight as someone who was involved about how he thinks about tech.
It's such an important industry.
Obviously it's what's in the pulse here, what are his thoughts around some of these issues?
Well, I think one of the things you have to know about Donald Trump is that he can take anything and digest it quickly, but you have to deliver it quickly.
This is somebody who wants to know, in 30 second, what do I need to know?
Or in 5 minutes.
And he will take an hour briefing, but only if it really takes an hour.
And so when you look at tech issues, what does he need to do?
He had about an hour meeting with some of the foremost authorities in technology, including Elon Musk and including Tim Cook and others.
And They had an hour to make their case, and what did they need?
And they did, they made their case that we need the best and brightest so we can grow economy in America.
We need to be able to bring back stranded capital, because it doesn't make any sense that we get to leave it over there and invest it.
Or we can pay a third of it out if we wanna bring it back.
He got it, He didn't need a third item, but the fact is the technology here with a little, there's a few items, we need bandwidth, we need some things like that, but that's in the weeds.
when you look at Donald Trump, we need two things from him.
We need him to move Congress to reform the tax laws so that it encourages American dollars made overseas to come back.
And, we need to have the best and the brightest be able to get here so that whether it's H-1B or other programs, it means that you can create a job here because you can get the person you need if they're not available here.
That's why the beauty of Trump is, he doesn't want to run technology, he wants technology to run and he's prepared to help in those ways.
So, I'm actually curious about it.
You brought up a couple of issues that are really fascinating to me.
One of them is the repatriation.
Apple has been hugely talkative about how important it is, To repatriate taxes and also take the money and have a tax holiday.
It's one of their signature issues on Capital HIll.
And if we look historically, one of the concerns experts always bring up is that the last time we did a tax holiday that money was largely given to shareholders.
It didn't create new jobs.
It didn't really have that much impact and it didn't really do what Congress had hoped it would do when they passed that.
Well, Congress has a bad habit of thinking that you have to be able to take the money and put it into a certain account or it doesn't get there.
Okay, we've got a live studio audience here.
Just a show of hands, how many of you, if you received money as stockholders.
Would put it to good use.
The reality is, is that money that comes back here and goes to stockholders will buy more stock, make investments, maybe buy an extra iPhone, and by the way when you dividend it out there's a tax paid.
So the government gets an extra benefit if it's distributed out So even back in the Bush administration when they did that, yes, some of it got paid out in dividends, some of it got invested.
And then some of it went to the American people, the stock holder who, guess what, invested it.
As a matter of fact, one of the interesting things is if you think about Apple's stock holders, largest stock holders of Apple stock, of course, are large funds.
And large funds-
Because it's going to bring up as,-
How are they gonna help normal Americans.
Well, the thing is large funds, if they get a distribution, they normally don't distribute back to their actual stockholders, they reinvest it.
So it didn't really divide it out in the true sense, to the pubic, it really went into the fund, who then either bought more Apple stock, or quite frankly might have had other start ups.
The first thing you have to do is not assume that money has to be earmarked for some use because if you do that what happens is, and I'll just take Apple as an example, Apple says yeah we're gonna put $10 billion, we're gonna bring it back and spend it here but we know in the quarters afterwards they can take another 10 billion they would have spent there and not spend it So, thinking you can air market is a problem.
But here's the other part of it.
The last tone was a bad program, because it basically said it's 5%, take it now.
It was a tax holiday.
What it did was it encouraged people to do the same thing again, and build it up overseas.
What Donald Trump knows, the legislature, and Congress knows, is we have to come up with a permanent change That tells people, don't strand the money over there.
Bring it back.
If you bring it back, we're not gonna penalize you.
But by the way, the deal we set today is the deal that you're gonna have in the weeks and months on a permanent basis.
And that's why real change rather than tax holiday is President-Elect Trump's goal, it's Congress's goal.
And that makes some sense.
I guess what The concern that when I hear from the experts on this is that when we're gonna talk about meaningful impact from that money coming back.
Bringing it back and having it kind of go in the circle of Wall Street is questionably impacting real Americans.
But Well you'd said Apple.
I'll give you a little piece of-
It doesn't have to be Apple, there are a lot of companies.
I know, but since they're a great company, why not pick on them?
And they are very large.
They're large, but they also pulled a trick.
Apple already brought much of their money back.
They brought it back and divided it out a couple years ago just before taxes went up.
And what they did was they borrowed against the money that's stranded overseas, then took the borrowed money and divided it out.
So in a sense, Apple has to unwind the situation in which they already did a transaction.
It's that kind of distortion where government always calls it a loop hole, but the reality is, government has created a bad idea.
Corporations really don't pay taxes.
If you take 35% off of a corporation and then it pays a dividend, all it really does it reduce your dividend by 35%.
If you don't take it from them and you pay it out, what happens is I pay more taxes.
But at the end of the day, if they reinvest it, and, pay less taxes and reinvest it, actually, that's where the real magic is.
So, if you look at a company that is looking for money, and they've got, and they, let's just say, many of the NASDAQ don't pay any tax, sorry, let me rephrase, don't dividend at all And, what they do is reinvest every penny they have.
But if they're growing fast enough, they're actually net borrowers every year, because even though they're reinvesting every penny, it's after-tax pennies.
One fo the questions in the tax code is, if a company is reinvesting in expansions in the United States, Why not give them a deferral on their taxes so that we're not taxing them on exactly the investment that's gonna make them more profitable in later quarters in which they're gonna pay us more?
And again, that's an investment act.
So there's a lot of that moving around Washington.
What we know now is that we have a partner that is willing to work with us on how to do that.
And it's not automatically causing there to have to be a tax increase to offset a tax cut.
Because yes we need to deal with the corporate tax, but I think everyone here at the show doesn't wanna pay some large tax increase just to do that.
So, and not to belabor it, I just want to make sure I fully understand.
For you the concern is that it's a regular program.
It's not a holiday.
And that if it ends up going into the investment, you know, kind of cycle of Wall Street.
It's not as much a concern versus helping create jobs, buying new factories, whatever.
But as long as these companies get to choose what they want to do with it.
Corporations will invest at the highest and best use.
We are giving an opportunity for them to make that investment.
One of the important things is that the repatriation has to be a repatriation.
You can't say, well we're gonna let you pay the tax and then have it recapitalized over seas.
So there has to be some protection from that.
Let's move on to encryption.
I think it's one of, probably the hottest topics of the tech industry in the last year.
[CROSSTALK] [LAUGH] Apple will be a regular conversation, I think here.
So, it's almost been a year since that happened, right?
Apple versus the FBI.
I believe you said that the FBI should of packed All right, the form before they try to go through the legal means to try and force Apple to help them.
What I said was that pretty much a fresh man at MIT could have hacked it.
Anybody that ever worked for me as an engineer could have hacked it.
I mean we're not talking difficult, just a few minutes ago you had a taken apart product here.
And what you're really do, well you open it up, you look at the sub-components and he asked a question, did we have a non-volatile memory that could have been replicated and then repeated as many times as necessary to circumvent the automatic destruction?
Then he answer was of course you did.
You only had to be highschool electronics kid not even a college.
to do it and afterwards, a number of people shall they can do it for less than $200 of ad parts and it's on the internet.
You don't have to believe me.
One of the questions was, we who want encryption to protect us, the FBI go to a court and ask Not ask but order a company to create a back door that was easy, automated and repeatable remotely.
Now if I've got this phone and I can hack it because I have possession of the phone, and it might take me an hour, two hours, but I can do it.
You know what?
That's good enough for the FBI's needs.
Let's face it, the guy was dead.
But they asked for something that should worry you.
When somebody asks for something that they can do on every phone here at this show, remotely, you say wait a second you're asking for a tool that has nothing to do with your current need.
And that's what I told the FBI director in live Audiences, I know how I can I could open that phone so I wanna know why you're asking for a company to do something to its disadvantage and to the people that it represents, those buyers.
If all of you wanted to buy 10,000 phones and said I wanna back door on the phone I buy, I would support that, but not on the phone I buy.
So do you think that the, let's take the encryption part of a second, right?
ignore the hacking and the kind of.
All mechanics there.
Do you think the government should have any sort of access to these phones as a regular course, that there should be a rule that encryption is fine but not when it comes to national security?
Well, that's interesting.
That's sort of like saying you can have a boat with no holes in it except for the one that's there.
That's the argument Tim Cook makes...
Tim makes a good argument, and the argument is simple, encryption is how you take away my right to privacy.
And to believe that set of keys will not get misused...
Simply runs counter to actual past experiences with law enforcement, including the FBI, now having said that, I appropriate money, that's what Congress does.
We have appropriated both...
In monies that you can see and in monies you'll never see that are in dark programs.
We've appropriated money to allow our clandestine industries, our CIA and NSA and so on, to do things that are really amazing, that in fact can circumvade protection.
I'm willing to spend that so that our national security, so that our enemies cannot safely do things.
I'm not willing to order a company to work to their disadvantage and to their consumer's disadvantage.
I don't use the office shelf products here, I use what's out.
I do that for a reason, which is [SOUND]
I'm not available.
[CROSSTALK] have your phone?
Let me see.
I can't talk right now.
But if you just touch a phone it rings, that's because they're listening.
But [LAUGH] I wanna project it.
The fact is, we all know that, for example, the State Department's email system was completely circumvented, and all the emails were pulled.
And for 30 days they were at a almost shut-down as far as operating.
We now know that the Russians hacked The Democratic National Committee fit rather mundane, simple fishing expedition.
My emails are encrypted.
If they're not going to get my key, they go to my services, I have multiple accounts, and they can do a great job of getting some encrypted files.
They're not going to get my emails.
And that's my right to privacy.
And I think that's the greatest part about being an American is I have a constitutional right I've had for 240 years.
And the clandestine stuff you were talking about.
When they find those hacking holes, it doesn't worry that they're doing that and not alerting Apple and closing those holes or whatever.
Those entities are required to operate outside the United States.
And so making America safe has required spies since George Washington hired a bunch of them.
So I don't have a problem with that, and I think the important difference is national defense and investing money In figuring things out.
In World War II we figured out how the Germans were encrypting in their cipher and it helped win the war.
That's not new.
But we're Americans and we have a right, an expectation of privacy.
Not just American citizens, but anyone here in the United States.
And to me, that's more important than a moment of catching a bad guy.
And it doesn't worry you that those holes might come back and affect us, in the United States?
That's an interesting question, but do you really hear what you're saying?
Does it bother me that we're investing money in trying to figure out, for example, how we can find out what the Russians are doing so that we maybe can figure out that they're hacking us before they hack us?
No, I'm okay with that.
I'm just making clear.
Like, you said earlier, the keys, that you don't want those keys to be out there because they could be used In the wrong way, right?
And what my point is is that, even if it's clandestine overseas, they could still end up being used, right?
I mean a key is a key, it doesn't matter if it's overseas or not.
No no, you don't understand.
The arithmetic of encryption is just that, it's arithmetic.
And so you can have a very, very long key that is not a public key, that cannot be found.
Now, having said that, we have clandestine organizations, and I've been briefed on them over the years, who find ways to get information.
And I'll just give you one that's legacy, if you will.
When you have a telephone conversation over a cellular phone, if you don't encrypt your signal
What happens is with CDMA, you can't just grab the signal out and listen to it.
However, if you go to whether phone goes to the ground line, if it's not end-to-end encrypted, you can listen to everything.
Now, that happens to be a piece of legacy information that anyone that knows cellular knows that, that at the switch Most of our signals were unencrypted, historically.
So, do I want my client ad agencies to know that and to try to get the information?
You know, anyone that's watched a 30 year old James Bond movie has seen a long range microphone that can pick up what you're saying from miles away.
There's a lot of techniques and I'm not gonna sit here and talk about the techniques.
But we fund our government making America safe, we also have a set of constitutional protections that I think are not fungible and one of them, the Apple case made clear.
I will never, never support Telling our companies or our citizens that, in fact, they had to have a back door so they can be a little bit safe.
So the last question I'll ask on this.
President-elect Trump said that he was going to boycott Apple's products over the Apple versus FBI thing.
We saw him using Android-- [CROSSTALK]
He only tweets, he doesn't use phones for much else.
I understand, but when he says things, it does have an impact right?
I mean he is the President elect of the United States.
Actually when he said it, he wasn't the President elect.
Okay, but you get my point right and so--
Look, I get your point that lots of people said a lot of things,
Marco Rubio, who I supported initially for president in the very beginning, was strident in the same way, while Ted Cruz, who I didn't support was on my side.
Politics often gets people making a statement that when you really sit down you change your mind.
President-elect Trump in just a few day on January 20th at noon, were raised his right hand at he were swear a legions to uphold and defend the constitution as long as the constitution is unchanged, he will have to defend before the amendment, my right to privacy, my right not to have unreasonable search and seizure.
And I think he will do it, and I know many of the people that gonna be in administration.
And by the way if they don't, I can be his best friend, I can be his nemesis.
Because I took that same motion I took it seriously.
All right, well Congressman thank you for taking the time I appreciate it, that's a rapper us actually.
The end of our CES 2017 coverage from the stage.
Thank you all for joining us, both here and over the Internet.
And check out all of our coverage on CNET.com and we'll see you next year.
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