[edited 10/9 2pm Boxer analysis to change "foreign cash" to "assets"]
I get a press release a day from WIN America, the coalition of almost two dozen multinationals and about two dozen business organizations (like the Chamber of Commerce) that is pushing for another big "repatriation holiday" tax cut for the multinationals.
Now they're touting the Hagan-McCain Foreign Earnings Reinvestment Act with lots of quotes from those that are on board .
Most are unsurprising members of the right-leaning arm of the GOP.
- Douglas Holtz-Eakin wants "private-sector driven initiatives" and claims repatriation represents "a welcome step in the right direction" by meeting "near-term needs for more jobs and ...long-term creation of a competitive tax code."
Nah. A repatriation holiday, in the first place, isn't a "private-sector" initiative. It is government policy acting to single out multinationals for a special tax break compared to the current rules. That is as much a public as a private action. And nothing about the tax holiday is likely to lead to much "near-term" job creation--maybe a few, but at a steep price. And it certainly hasn't got anything to do with reasonable changes to the tax code. It isn't clear, to start with, that "competitive tax code" is a goal we should be striving for. Who are we helping compete with whom, if we design our tax code for "competitiveness" rather than for fair taxation? Note that the demand for government to create a "competitive tax code" is essentially a demand that government intervene to establish special market rules for multinationals that will work in their favor (letting them have more money).....
Holtz-Eakin, by the way, was paid by the U.S. Chamber of Commerce to write a report on the repatriation tax holiday.
- Eric Cantor claims "American companies currently pay one of the highest tax rates in the world" and that repatriation "will spur investment, economic growth, and job creation".
On the first, the answer is clearly no. US companies have slightly higher than average statutory federal income tax rate, but they don't pay that tax rate on their economic income. The majority don't pay any federal income tax most of the time. Those that do may pay at an effective tax rate of around 20-25%, but even that is likely an overstatement because of the way they can manipulate income. We don't have a VAT here, as most European countries do. There are just about as many state loopholes as federal tax loopholes. etc......
On the second, the assessment is clearly no. The last (supposedly ONLY) repatriation holiday in 2004 was an expensive bust, costing the fisc more than 60 billion and mostly going to share buybacks that merely changed shareholders' investment portfolios.
- Kevin Brady says repatriation will allow US multinationals to "invest in jobs and expand their businesses in our backyard."
Again, this is the same argument that was made for the failed 2004 repatriation effort. It is even weaker this time around, because companies have even more cash. They can already do whatever investing they really want to do in their U.S. business. A repatriation provision without any teeth (to require proof of new US jobs that wouldn't have been created without it--taking into account, that is, the fungibility of money-- and to clawback the tax benefit without the proof) is just another corporatist giveaway.
- Grover Norquist (the "no new taxes ever no matter what" president of Americans for Ending Earned Benefits--oops, Americans for Tax Reform) says that "Repatriation is simply too good of an idea not to do" because the 2004 deal brought back billions "from locked up overseas accounts" and it can be accomplished "without Congress spending a dime" so "[t]here is literally no downside to doing this."
Wrong, wrong, and wrong. First, as noted repeatedly, there is miniscule good in the repatriation idea. A much better job creator would be to dedicate the $80 billion from repatriated fund taxes over the next ten years to direct jobs programs (like the New Deals CCC, etc.) building infrastructure. Second, repatriated funds aren't "locked out" overseas--they may be sitting in U.S. bank accounts in the foreign affiliate's name, or sitting in U.S. investments in the foreign affiliate's name. And even if they aren't actually already in the US (so "bringing them home" wouldn't add a penny more to the cash awash in the country), the parent can bring them home already at very low tax cost--the $80 billion over ten years shows that there isn't a huge tax cost to repatriating funds. That's because multinationals get a foreign tax credit, and the Bush tax cuts included a host of provisions that were corporate-friendly, including modifications to the way the credit works to make it much easier to use credits against US income. Further, even if these cash-rich US multinationals need a little more money for a planned investment, they can borrow against their assets now at exceptionally low rates. Third, a tax holiday is not a freebie that doesn't cost the fisc. Grover Norquist of course knows all about tax expenditures, but he also knows that most Americans don't. This is PR and nothing else. That $80 billion would either fund needed programs (see above) or help the US avoid an additional $80 billion deficit. And that's really important, since the rightwingers are intent on using every deficit dollar to support their goal of decimating the earned benefits programs established in the New Deal.
But there are several on the "quotes" list that are disappointing, at least.
- Simon Rosenberg, Founder of the New Democrat Network, says "The Foreign Earnings Reinvestment Act is smart public policy...[that will help bring hundreds of billions back home, to be invested in the United States."
There's nothing progressive about a corporatist provision that puts money in the hands of the biggest multinationals that have most easily used gimmicks with the intended purpose of offshoring profits to avoid U.S. tax. (Unfamiliar readers might look at prior posts about repatriation and the transfer pricing gimmick on intangible intellectual property 'sales' to foreign affiliates.) As noted, this extra money from avoided taxes is most likely not to be used to create jobs (they can do that already if they want to) but to be paid out in bonuses for improved performance to already excessively overpaid managers and in share buybacks to (mostly wealthy) shareholders with the primary result of portfolio diversification that may in fact lead to more investment of those dollars offshore in emerging markets.
Rosenberg claims to espouse "new progressive" ideas. But folks, there isn't anything progressive about a repatriation holiday--it's just more favors for Big Money.
- Barbara Boxer says bringing back a trillion dollars "that's sitting overseas" will "create jobs, strengthen the economy, and reduce the deficit."
Not likely. If a company already has plenty of money to invest and can borrow against its assets extraordinarily cheaply and sees an opportunity to expand its business by investing, it will invest. You don't need the tax holiday to do it.
Boxer, by the way, is bound to be under pressure from her Silicon Valley constituency- all those big IT companies that find it easiest to "transfer" their intellectual property to foreigners and then avoid US taxes, and who have great stores of funds overseas that would benefit from the repatriation tax holiday.
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