Corporate Piggies Return to Trough
For years, corporations and rich people have been hiding their money Off Shore* to avoid taxation. Their big problem is that they can’t bring the money back to the US without paying taxes. That means they can’t use the money for dividends to shareholders, or, more likely, for stock buybacks. This rule has some teeth, so every few years the corporate piggies run to their Congressional dupes and offer them all kinds of fake reasons why letting them bring the money to the US tax-free is a good idea, and their prize idiots let them do it. This process is called “corruption”. The part about bringing the money to the US is called “repatriation”.
The last time the piggies gathered was in 2004. “Oh Gentle Congressperson, we promise that if you let us bring in all that luscious tax-free money at a tax rate of 5.25%, we promise, promise, we’ll use it to create jobs in the US.” That led to the American Jobs Creation Act of 2004. About $312 billion of minimally taxed income flowed into the US, but there is little evidence that it helped jobs or investment.
A paper published by the National Bureau of Economic Research (abstract only) explains why. If a company has access to capital, then it will at all times maximize its investments both inside and outside the US. If it doesn’t, then there might be an increase in investment in the US if it can bring some of its off shore cash to the US for investment. The authors say that firms that could not finance desired capital projects from internally generated income, and that were able to repatriate foreign profits, did increase their investment in the US. The authors estimate that there was an increase in domestic approved investment of $61.5 billion among these companies. If all the repatriated money had been taxed at 30%, it would have produced over $90 billion.
The authors think that companies that repatriated reduced employment, but say that their estimates may be wrong.
Firms that had the ability to finance their activities from internally generated cash flow did not increase their US investments significantly. Just as you would expect, companies that didn’t need the money paid it out to shareholders through dividends or stock buy-backs, used it to reduce their debt, or to build up their cash on hand in the US.
The piggies found another useful tool in 2009, ex-Senator John Ensign, who tried to attach a free money amendment to the stimulus bill. Congress didn’t think it could afford that level of nonsense, and the amendment disappeared. Senator Levin discussed the stupidity of the idea. Here’s a taste:
According to a January 2009 Congressional Research Service (CRS) analysis, [PDF] of twelve top repatriating companies, ten cut jobs even before the recent economic downturn. Pfizer repatriated $37 billion, more than any other company, yet closed a number of plants beginning in 2005 and cut 9,000 jobs in 2005.
Now they’re baaack. And the facts never stand in the way of a good story. Here is their website: WinAmerica, complete with patriotic-looking logo. How can you resist this quote from Ben Bernanke?
“If you were to allow firms to bring back cash from abroad without additional taxation or limited taxation there might be more incentives for them to bring it back home and use it domestically.”
Bernanke used to be an economist, but being Fed Chair requires that you believe in the Easter Bunny. The new argument is that it will increase investment in the US. You may think it is the same as the old discredited argument, but just look at the new corpspeak:
[A]n essential first step would be to allow these worldwide American businesses the freedom to bring up to $1 trillion in global earnings home to invest it now into our still fragile economy. Unfortunately, our broken tax system actually penalizes U.S. businesses that want to bring their global earnings to America.
Really? Paying taxes is a penalty? How very Ayn Randish, especially that word “freedom”. Yes, this is the argument from Apple, Google, Duke Energy, and the Chamber of Commerce, among others. I’ll send them a link to the paper, and will be sure to follow up as soon as they respond.
*Check out this FDL Book Salon and read the book.