In a recent posting, I commented further on the lack of arguments supporting the corporatist lobbying drive for another "repatriation tax holiday" for multinational corporations that have stashed more than a trillion abroad (often through gimmicky transfers of intangible property such as rights to patents developed in the United States). See Repatriation Holiday Lobbying--Money Speaks (Oct. 3, 2011).
The reasons are manifold. Corporations today are not cash-strapped--they've got lots of cash in the US too. And even if they need cash that is currently offshore, they can borrow against that cash at exceptionally low rates today. So they aren't investing in expansion that would create new jobs for lack of cash--they are not investing in expansion for lack of customers. The middle class is collapsing, after four decades of reaganomics have steadily worked to erode unions and the empowerment they offer workers, leaving worker wages in decline while their bosses roll into the ranks of the superrich on their newfound ability to take an undue share of the companies' productivity gains. Even when money is actually brought back (rather than already resting in US bank accounts), it is most likely to be used to pay even higher performance bonuses to top managers and to pay for dividends and share buybacks for shareholders. And those shareholders are most likely merely to use it to make new secondary market share purchases--resulting merely in a net change in their portfolios--not direct funding of new enterprises. Much of those secondary market investments are likely to be in emerging markets rather than in the United States.
Most telling is that the very fact of one tax holiday means that corporations will inevitably plan for and conduct business assuming future tax holidays. It is ikely that planning for this current lobbying effort began on the day Congress passed the 2004 Jobs Act! What that means is that the tax holiday itself encourages even more of the very offshoring activity it claims to be amerliorating. Corporations will use gimmicks to move and stash away even more money offshore to avoid even more current taxes, in the hopes that there will be a further tax holiday that will allow almost zero taxation on those repatriated profits. That certainly happened after 2004--the companies that had been good citizens and had regularly repatriated cash found themselves losers compared to the bad citizens that had used offshoring to avoid taxation. More of the good citizens then became bad citizens, and the amount of offshore cash has grown much faster since the 2004 repatriation holiday than before.
And our experience with repatriation tax holidays was a telling one. Corporate lobbyists worked hard to get the misnamed 2004 "American Jobs Act" passed with a very low tax rate for repatriated funds. Yet it resulted in very little job creation.
(This is not surprising, since (i) corporate tax cuts don't create jobs; consumer demand does and (ii) Congress didn't put any real teeth in the job creation end of the legislation, such as demanding that any corporation repatriating cash and expecting the low rate establish that it had created substantial new jobs with the repatriated funds that were not on the planning board at the time repatriation was first introduced or when it was passed and that those jobs were permanent full-time domestic jobs.)
In fact, a new study by the Institute of Policy Studies addresses what it calls the "dangerous myth" that "corporate tax cuts create jobs" and the "disastrous results" of the 2004 tax holiday. It reminds us that a government report found that 12 of the top repatriators brought home $100 billion (a third of the total repatriated under the earlier provision) and yet laid off 67,000 workers in the two years after the windfall. Further, the 2004 holiday allowed 843 companies to use $312 billion in repatriated funds while avoiding $92 billion in taxes. The worse factoid of all is the one that shows that U.S. taxpayers "provided a huge subsidy to corporations that destroyed jobs": 58 corporations that accounted for about 70% of the repatriated funds cut almost 600,000 jobs. Report at 6-7. See America Loses: Corporations that Take 'Tax Holidays' Slash Jobs, Institute for Policy Studies (Oct. 3, 2011) (summary, with link to full report).
The report is clear in its description of the way US corporations shift profits overseas and then lobby for even lower taxes.
Drug companies — and many other companies as well, especially in the technology sector — don’t just make profits overseas. They shift profits overseas. The process has become lucratively routine. One example: A U.S.-based corporation begins the process by having a foreign subsidiary register its patents in countries like Luxembourg that do not tax income from intellectual property. The subsidiary then charges its U.S counterpart a high price for use of the patents. These high royalty fees, coupled with the costs of research, marketing, and management, allow the U.S. operation to report to the IRS an artificially small profit — or even no profit at all. With no appreciable profit to report, the U.S. operation has no appreciable corporate income tax to pay. The company’s actual profits sit undisturbed with the overseas subsidiary. Report at 11.
The report also scorns the lobbying efforts of WIN America, which has spent more than $50 million lobbying for the tax break, which would cost the fisc around $80 billion in lost revenues. Report at 9-11. WIN America--a coalition of 18 publicly traded corporations and 24 trade associations, including the U.S. Chamber of Commerce--has "hired 42 former congressional staffers who worked for the House Ways and Means Commitee or the Senate Finance Commmittee". Report at 9. It goes on to rep9ort on the way individual members of the coalition have lobbied for the tax break (e.g., Pfizer's sponsoring a favorable section on 60 Minutes) and cut jobs (e.g., Duke Energy's cutting 10,000 jobs, probably as a result of its 2006 merger with Cinergy in the U.S., contributing to the North Carolina Democratic Party and then, shortly after getting support for repatriation from the Democratic governor of North Carolina and its Democratic Senator Kay Hagan).
For other commentary, see also John Carney, Corporate Tax Holidays Might Not Create Jobs, CNBC (Oct 4, 2011) (commenting on the IPS report as well as the Heritage Foundation report discussed below).
The WIN America coalition was undoubtedly taken by surprise when the right-leaning Heritage Foundation came out with its own report, a "backgrounder" on taxes that condemns the repatriation tax holiday idea as not doing much to create jobs: J.D. Foster & Curtis Dubay, Would Another Repatriation Tax Holiday Create Jobs? (Oct. 4, 2011). The Heritage Foundation report acknowledges that "if another repatriation tax holiday were enacted, one should expect a similar result as last time: specifically, a surge in repatriations and little appreciable increase in domestic investment or job creation." And it cites the reasons one would expect--today's multinationals that have money to repatriate are not cash-strapped: any investments that they need to make for business expansion purposes (that would create new jobs) they can do readily without needing a repatriation tax holiday to grease the skids.
By the way, the Heritage Foundation is resisting repatriation because it wants the big prize--an overall cut in the corporate tax rate and a shift from our current system of taxing worldwide income (after tax credits for taxes paid elsewhere) to a territorial system--and it doesn't think repatriation will be treated as a step in that direction. Those Heritage-supported tax policies would result in even more offshoring and even less corporate tax contribution to the fisc, which is already terribly low at around 2-3% of GDP.
For additional commentary, see Heritage Foundation Reverses Position on Repatriation Tax Holiday, Huffington Post (Oct. 4, 2011) (
Not surprisingly, the WIN America coalition struck back today, with a press release attacking its ordinary ally for not supporting the repatriation tax holiday drive: Fact Check: Heritage's Flawed Study Ignores Their Previous Support for Repatriation (Oct. 4, 2011). The coalition has three arguments: (1) Heritage said something different back in December 2010, (2) other studies say repatriation will create millions of jobs, (3) the 2004 Jobs Act really did work in spite of what these other studies claim because the firms themselves say they created jobs, and (4) lots of people support repatriation. None of these arguments hold water.
The coalition first complains that a December 2010 Heritage study concluded that repatriation would "provide additional liquidity" that would increase shareholder wealth allowing them to make "new investments" and would permit the firms to finance current operations, reducing their need to borrow working capital. Let's parse this out. The primary reason that doesn't make sense today (if it ever did, which is dubious) is, as the Heritage Foundation's current report points out, that US firms are not cash strapped. They don't need more liquidity to be able to make investments or finance their current operations. They probably don't even want to reduce loans that are at historically low interest rates any more than they are doing. And shareholders' "new investments", as noted above, are just a move from one portfolio investment to another--they are not investments that encourage entrepreneurs or go to the working capital of companies but just a result of secondary market purchases. Very little of that does much for the US economy or anything for creating new U.S. jobs.
WIN America counters that the August 2011 study done for the U.S. Chamber of Commerce by Douglas Holtz-Eakin, The Need for Pro-Growth Corporate Tax Reform, claims that a repatriation tax holiday will "speed the pace of economic recovery, increasing GDP by roughly $360 billion and creating approximately 2.9 million jobs" because repatriation tax holidays are "a private-sector approach to stimulus." That's quite simply balderdash. These same kinds of pie-in-the-sky claims were made about the disastrous 2004 repatriation tax holiday, and they were proven wrong then. They are based on the same bad economics now, the economics that says that "the high U.S. [corporate tax] rate harms economic growth, the amount and quality of U.S. investment, and the wages of U.S. workers." That claim is simply unsupported--the U.S. is a tax haven, a reasonable amount of taxes will never discourage a business from expanding its business when it thinks that expansion is going to be profitable and it has the money to do it. It is in fact this same school of economic thought that has given us the Laffer curve, the "rational man" calculations, and the rest of the Hocus-Pocus economics enterprise that treats rigidly unrealistic assumptions as God's Truth to justify an ever-increasing share of corporate profits going to managers rather than workers.
WIN America then argues that 23% of the 2004 repatriated funds went to job creation and should be considered a great benefit to the economy. That number is derived from a survey of tax executives--essentially self reporting on the result of the company-favorable tax repatriation holiday, so it is not only a very low return on the high tax cost of the repatriation tax holiday, but also one that must be evaluated with some acknowledgement of the fungibility of money and the ability of firms to claim that job creation and investment that they would have done anyway was done "because of" the repatriated funds.
WIN America concludes with quotes from lots of people (probably written by WIN America or one of its army of lobbyists, don't ya think?). These quotes just repeat the desired sound bites -- "bringing the money home" will "create jobs and re-invest in America" (GOP representative Gregory Meeks, Sept. 9, 2011); "let's bring those dollars back"... and "companies outght to put it into workforce training or they ought to put it into research and development" (GOP Ohio Gov. John Kasich, Sept. 14, 2011). And so on.
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