Interview with Douglas Oberhelman, CEO of Caterpillar
Doug Oberhelman, chairman and chief executive officer of Caterpillar Inc., talks during an interview at the East Peoria plant earlier this week. (Zbigniew Bzdak/Chicago Tribune)
A. Well there's a lot right, which is part of what's so frustrating: A central location; a great city, Chicago; a deep educational base; and, until recently, a relatively attractive tax rate. That's never really been a problem here. It has been all the other things that have gotten off track in the last decade.
Take the tax increase. I am dead set against early repeal of that tax increase. But, in fact, it's temporary. It will end in 2014. And government spending has gone up after the tax increase, so we've absorbed (it). We have to replace that by 2014 with savings somewhere, and we're heading in the wrong direction. So what do I tell the employees we would bring here for investments? That our tax rate is going to go down? I question that.
Q. But there are a few things I have to square that against. Caterpillar, for instance, takes taxpayer money to help pay for job training and new factories, and your overall effective tax rate from 2000 through 2009 was about 26 percent. (The top U.S. corporate income tax rate is 35 percent, meaning foreign subsidiaries helped shave Caterpillar's tax bill substantially.)
A. We end up filing a piece of paper waist-high every year (with the Internal Revenue Service), given all of the complexities in the tax code. We take full advantage of every deduction we possibly can, like I would encourage every single American to do.
Q. You have a whole department dedicated to lowering your taxes.
A. We have a whole department. We try to take advantage of every single deduction we can possibly find, which is in, my mind, an American way to do it. It's the law. We do nothing illegal. Everything we do is absolutely according to code. We're audited. I'm proud of our tax department.
However, what I would like to see is, let's recognize an average (federal) rate of 25 to 26 percent. Get rid of the deductions and watch tax revenue go up. I would gladly pay more in (federal) taxes. Because I think a simplified (federal) tax code would make it a lot easier to invest in this country. Same as I would say on the personal tax code ... Clean all that out. Simplify it. Lower the tax rates to what is reflected anyway, and watch tax revenue go up.
Q. As you know, Illinois changed its tax code, so that large manufacturers, like Caterpillar, pay income taxes only on income from in-state sales. That was done to appease manufacturers. Your Illinois tax rate would skyrocket if Illinois simplified its tax code.
A. We have always had for a long time in Illinois a relatively attractive business tax rate. That was put in (in 1998) to make Illinois relatively tax friendly. What's happened is all these other things have gotten in the way of being friendly to business ...
Q. You had a backlog of orders at the end of 2010 of $18 billion. At the end of 2011, it was a record $30 billion. How much of Caterpillar's recent success and its predicted success comes from the company just catching up or from the stabilization of the economy?
A. Our sales increase is due to several things. A better worldwide economy would be at the top of the list. We've also worked hard on our investments to increase the amount of products we can get through our factories. We'll spend $4 billion on capital investments in 2012, most of them on expansions, in order to be able to build more. I think the backlog is a result of increasing business demand.
Q. What do you attribute the demand to?
A. Believe it or not, we're almost to the fourth year after the recession. We have seen the Asian economies booming in the last three years. We've seen South America booming. We've seen Africa and the Middle East booming. And that's more than offset the slower growth in the U.S. and all the problems in Europe. Our footprint is so broad and so wide; we can take advantage of all those economies.
Q. Have you met privately with the president?
A. Oh yeah. Yeah. Yeah.
Q. Are you a fan of the President's?
A. ... The respect I have for that office and him is unparalleled. He and I wouldn't agree on everything, but we'd probably agree on a lot of things.
Q. Are you going to vote for him?