Intel’s Layoffs and Dividends
Chuck Sheketoff
On Wednesday, January 21, Intel announced that it was halting production at five factories, including Fab 20 in Oregon. “The actions” it said, “when combined with associated support functions, are expected to affect between 5,000 and 6,000 employees worldwide.” In Oregon, 1,000 Intel employees will be “affected” according to news reports.
So, even though Oregon changed its corporate income tax so that Intel is probably now paying just $10 a year (Intel used to pay $50 million a year and was Oregon’s top corporate taxpayer), Intel is now closing a facility here and not in other states that still better tax Intel by apportioning Intel’s profits by considering more than just sales.
Intel’s decision to close one facility in Oregon and not in a state with higher corporate income taxes demonstrates businesses will do what the fundamental economics of their businesses demand and that Oregon’s efforts to alter those decisions by cutting precious tax revenues has been a fool's game. Taxes don’t matter; other factors do.
And while some politicians, lobbyists and editorial writers will point to the layoffs at Intel to argue “now’s not the time” to restore the income tax on corporate profits, BlueOregon readers shouldn’t be so easily led astray by the layoffs.
Two days after the layoff announcement, Intel announced a quarterly tax dividend of 14 cents per share. With about 5 billion shares of common stock outstanding, that’s not chump change.
There’s no reason Oregon’s income tax on profits shouldn’t be fixed so that Intel could once again proudly proclaim itself our best corporate income taxpayer. Unfortunately, the Governor’s plan for changes in the corporate income tax would preserve Intel’s status as just another corporate minimum tax taxpayer. I’d like to see the legislature enact a corporate tax structure that allows Intel to boast again that it is number one.
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Jan 25, '09
Those evil corporations must pay more taxes! That'll keep more jobs here in Oregon. You guys from BlewOregon must be members of the educated class.
Jan 25, '09
Are you sure that Intel only pays $10 in Oregon income taxes?
Any acknowledgment that Intel might pay property taxes? that their employees might pay state and local property taxes, too?
The $10 canard is rather old, and not very useful in explaining a more complex issue.
Bottom line: business has declined rapidly, and the near term prognosis for a quick recovery is not very encouraging. Intel has decided to shutdown an obsolete (technology wise) fab. At the same time, it has been slowly ramping up a newer fab at the same location. Slowly, since business is soft. Some of the laid off workers might find a position in the newer facility - I'm sure we all hope for that.
There are many factors that influence company decisions to site a facility. In the high tech arena, considering the attractiveness of an area to new employees, or access to a skilled work force probably trumps the tax rate. Then again, no company is going to locate to an area that taxes the company or its employees excessively.
9:35 a.m.
Jan 25, '09
Canard means not true. Intel very much pays $10, so it's no canard.
The bottom line is that corporations haven't paid their fair share for years now, and you can see the effect on our services. All that the break does is increase profits taken and distributed elsewhere to shareholders instead of workers.
Jan 25, '09
If Intel employees pay income and property taxes, than their EMPLOYEES pay the taxes the same way they would if the money came from anywhere else. You don't get to count that toward Intel's tax bill. Nice attempt at misdirection though.
Unless, of course, you can say that my taxes count toward my mother's overall tax contribution to the state b/c if she hadn't birthed me, I wouldn't be here and then wouldn't have a job and then wouldn't pay taxes.
Jan 25, '09
Intel gets property tax breaks from Beaverton. Many employees come from this county, via light rail. That's infrastructure specifically for them that they don't pay their share on. Those other state will force people to drive to work. Chuck is spot on. It's stupid. Bet "Billy" loves it.
A practical point, though. What happens to all those H1 and such visas? They're requested by a corp., but don't they remain in effect if the employee is laid off? So, not only do we get a few thousand more unemployed, a good share are from the subcontinent, and will be looking for other jobs here, not going back, no? There's a good topic for a post. With record IT unemployment, why do MS and Intel and Nike and a slew of other NW corps get to request all those H1 and H4 visas? Wonder where the new admin stands on that one.
Mind you, not that I'm complaining. Cricket a la PDX wouldn't be as viable as it is without them, and, well, I can live without a job, but not without cricket.
Jan 25, '09
This is a brilliant political strategy. Let's not just limit this to Intel. ANY corporation that suddenly lays off people, should have their corporate tax rates raised. I'd like to also see corporate tax rates adjusted up for non-union employers
Jan 25, '09
Would you rather that companies like INtel and others not locate in Oregon?
If they were not here, the jobs would not be here, and in the end, the tax revenues from their employees would not be here.
Net result, lower tax revenues for the Portland Metro region and for Oregon.
By the way, how much is "fair"?
As for jobs, they can't all be on the public side. As I recall, public agencies pay no taxes at all; they just consume tax revenues.
These public entities also don't pay for infrastructure.
The area needs private businesses in order to have a viable economy.
Finally - taxes are paid if a company is profitable. Lack of profits usually leads to layoffs. So. . .no profits, no taxes. As for raising the minimums, are you asking that businesses pay a minimum income tax even if they have no profits at all?
Forget Intel in the discussion for a moment - apply the same argument to any local business without multi-national options.
By the way, I don't work for Intel. I do however see the value of attracting companies like Intel to the area. Especially businesses that pay significantly higher than the minimum wage.
Jan 25, '09
If high state corp tax rates are bad, why are there so many companies in CA. Cal's top rate is 2.2 pts higher than OR.
Jan 25, '09
Chuck,
You lost me. I do not see the rub on this one. Can you help me? Can you share more information behind the decision to lay 1000 people off?
Fred
3:36 p.m.
Jan 25, '09
The title of this thread seems to imply there is a moral conflict between paying a dividend and a layoff. There is some connection but the moral dilemma is difficult to judge from outside. I suspect there is no easy solution to the moral question because either choice results in undesirable consequences.
Some corporations have established an adversarial relationship with employees and regularly use layoffs to manage the bottom line. Boeing comes to mind as does the temporary employment practices of Walmart.
Intel, however, is one of a new kind of corporation that considers its employees to be the most important asset. Benefits like stock options and bonuses extend far down into the organization which builds an intense employee interest in quarterly earnings reports. Intel has weathered numerous cyclical downturns while minimizing impact to employees and I suspect the efforts were largely unknown.
Hiring and training highly skilled employees is very expensive. Severance packages and other benefits are also expensive and it makes good sense to hire those you can keep and keep those you have hired. I’d be surprised if one could find a flawless method of managing a slow down like we are seeing as Intel has tried a fair number of creative ideas looking for one.
This economic collapse has torn down most of Intel’s defenses and I suspect that recovery is in the distant future. When Intel cuts its quarterly dividends to stay alive, watch how well the market rewards them. I hope recovery is sooner than that.
Jan 25, '09
As a former Intel Employee the best thing I ever did was shop around and find more pay, fewer hours, and less insanity in the work place. While the workers who will be let go are factory workers these are people who can look elsewhere for jobs. This is after Intel's "Redeployment" process which is utter hell on its own. Good thing they have mental health benefits, they will need them!
As a former employee for a number of years I would never work for this employer again. They took advantage of me and their HR policies, raise/ranking/rating policies, and corporate control are quietly very harsh.
Intel has a lot going for it here in Oregon, for one thing sales taxes are a major reason to put the factories here in Oregon. If you only raised corporate taxes they would still be here, because they are getting a huge break versus the sales tax in California. If you were buying $100M in equipment you'd buy it in Oregon rather then California if you had a choice too.
Intel tries to be a good neighbor, we did lots of things, but in the grand scheme of things it doesn't make up for the little corporate tax Intel pays to the state. And like from the earlier comments, taxes employees pay don't make up for the corporation not paying much itself. The best thing Oregon can do is let Intel reduce its strangle hold on the state and diversify its business community to smaller companies. Having a big employer who can thump the state for tax giveaways is not a good thing long term.
Oregon is a special place, these corporations realize this, its not always as simple as tax policy. Did you even consider that the employee base pays far less for homes versus in the bay area? So thus Salaries can be lower? Intel relocates people to Oregon all of the time, they even pay for it. Bringing people into our communities who will have jobs when they get here helps a lot. They also benefit from the University System here too -- they recruit and focus on them.
I got screwed by Intel on my pay and decided to quit, this was after changing managers 4 times in 3 years and after I left I got 40% more pay from a smaller company. I don't hate Intel, but I do wish they would pay their fair share in taxes.
If you don't know what its like to work in these large corporations you really shouldn't talk about it. Its not all sunshine and rainbows if you get that Intel job they make you work very hard.
4:17 p.m.
Jan 25, '09
A has a point. Intel has a dark side and not everyone thrives there. However, the issue of payment of a dividend vs a layoff is a policy issue that is difficult to assess based on a limited sample size of experiences.
I suspect the pain of this lay off is felt by everyone, including those who were not affected and still have jobs. And, I do not believe the layoff was used to free the cash for a dividend.
5:14 p.m.
Jan 25, '09
While not raised by Chuck, the issue of property tax breaks for Intel is a reoccurring theme and often mixed with the corporate minimum tax. The core of the problem is the cost of buildings needed to manufacture chips. A new fab will cost more than a billion dollars and have a life time of about a decade. The cost of a new process is so high it can put the corporation at risk should the project fail.
Unlike other manufacturing companies, the building is an integral part of a fab. For example, they have to create a foundation that can remove the vibrations of a truck passing on an adjacent street. The building is not your typical big box store.
The property tax law requires that any permanent structure be included in the assessment. Since most of the cost of the fab building is from internal structures to support manufacturing, the assessed value of the building is enormous. Most other manufacturing facilities have moveable equipment and this equipment is not taxed.
Intel’s request for property tax relief was based on reducing the assessment of the built-in structures related to the manufacturing process. It seems a fair compromise for a property tax law that never envisioned a problem that is relatively unique to the manufacture of chips.
Jan 25, '09
Chuck,
What's a "tax dividend?"
9:19 p.m.
Jan 25, '09
Bill -- a typo, now fixed.
Jan 26, '09
If I understand Chuck's logic, a corporation should not be paying dividends unless it is maintaining employment, or adding employees?
The act of adjusting workforce and sharing profits with shareholders is bad form?
Let us not forget, the job of elected officers is to maximum SHAREHOLDER value. Corporations are not in the business of being employment maximizers.
Sorry liberals, we aren't yet to the point where Gov't get to dictate balance sheet decisions to private business.
Jan 26, '09
Scott, most liberals know that salaries are the biggest drag on the bottom line and often a lay-off restores economic health to an entity. You can debate all these points either way, but I think the point being raised by some is that, in each case, the "random variation" seems to always favor the corporate entity.
I'm glad they try to hire from local Universities, but you still have to figure a really large portion of those "new jobs" are not Oregonians, or even US citizens. While they add to the economy, they also burden the infrastructure, and that was the point. They're adding to infrastructure woes while getting tax breaks, then up and leave.
Want to beat a straw man? Conservatives think they're overburdened if every component of the situation isn't biased in corporate favor. That straw man- that that is also the State's interest- was advanced by Mussolini.
Jan 26, '09
Zarathustra, who's 'up and leaving?' Last I heard Intel was laying off ~1000 of their ~15000 employees in Oregon - still leaving them the state's largest private employer by a large margin. They're not going anywhere.
In the last few years Intel let employees go in both AZ and NM when they shut down obsolete fabs at those sites - Oregon was largely spared.
Further, if/when business picks up again, it's likely Intel will hire some number of that ~1000 employees back to staff an updated fab at Ronler Acres.
If demand for their products isn't there and isn't projected to be for a good while, what do we expect them to do? Open up a 'jobs bank' to enable employees to continue collecting pay for sitting around reading newspapers and watching TV? Great... let's get Intel started down that ol' Bailout Road to Washington.
As for the state corporate income tax issue, I don't necessarily disagree with Chuck's core thesis... but I think it unfair to demonize one particular corporation at a time when companies everywhere are making the same difficult choices.
Jan 28, '09
Most states strive to be a net exporter, not importer. Ironic how most of the above was written using a machine containing an Intel processor either directly or indirectly designed and/or made in Oregon – Intel’s largest site. The “higher tax” theme of Chuck’s column and many of the posters is a key reason why Californians are leaving California in droves. The US has the second highest corporate federal tax rate in the world. Does Oregon benefit from that? Maybe Intel and the rest of the Silicon Forest should send all of their production offshore to avoid that tax too; after all they are such a burden on our infrastructure anyway so it would be a win-win. And our sons and daughters could then look forward to jobs at Starbucks after graduating from the local university. Or maybe our graduates could just follow the jobs elsewhere so that Oregon can boast it is a net exporter of students.
Jan 29, '09
I'm assuming the production is leaving to go to other plants, not that they are simply doing less. Perhaps that's incorrect.
Nice, DJ. Apple and AMD processors' market share is of no account. Would someone address the H4/transplant issue? I maintain that most the good jobs AREN"T going to our sons and daughters. They create x number of jobs, but what per cent of those jobs are people already resident in Oregon? If it's 40% of new payroll, I would be pleasantly surprised. That makes those 15,000 new jobs more like 6,000. And yes, I'm pulling numbers out, because this isn't tracked. I'm not telling anyone this is how it is, I'm wondering aloud to what degree this is the case.
The bottom line is the bottom line, imo. Californians are leaving Cali in droves (and BTW, how is THAT bad?) because it is too expensive for what you get back. They don't split hairs, it's a gut feel, hmmm, I spent xx.yy this month to live in SF. Was it worth it? You see proposals all the time to implement policies that would leave us in exactly the same shape, but why would we do that? Didn't they follow exactly the same path you're recommending (by being contrary to a different approach)?
Jan 29, '09
Z offered: "I maintain that most the good jobs AREN"T going to our sons and daughters."
Perhaps not, because our sons and daughters are not seeking skills or degrees that semiconductor companies like Intel require to maintain their global leadership position. They hire the best and brightest who can continue Intel's development of products that the world demands.
Perhaps our schools are not doing a good enough job preparing high school students for college. Here is a stat to ponder: why is remedial Math one of the most in demand and crowded classes at OSU? Why are many students dropping out after their Freshman year? or taking 5 or 6 years to graduate from their 4 year program?
I will agree that local companies should hire our sons and daughters, but not if this requires lowering of standards.
Jan 29, '09
Zara, the Apple Mac has had Intel inside since 2006. As for AMD, they manufacture x86 processors based on Intel technology which requires them to obtain and occasionally renew a cross-licensing agreement with Intel in order to continue doing so.
As far as who is employed at Intel...all you need to do is get out and talk to people. Anyone who lives in Hillsboro or Beaverton knows that every neighborhood is full of people who either work directly for Intel or for an Intel contractor or supplier. And I do mean every neighborhood...from those that are home to executives and chip designers to those that are home to custodians and the entrepreneur who runs the roach coach.
<h2>Someone needs to explain how collecting Oregon corporate tax revenue at the risk of losing corporate jobs makes sense when our leadership in Washington is trying to tell us that the opposite - spending a trillion dollars to create and preserve jobs - makes sense.</h2>