The raid on our country's treasury has been underway for 30 years (and more). The corporate leaders have successfully drained our common wealth, shifting money away from the community and, instead, diverting it into the hands of a few. And now the din is growing for another robbery of the people to the tune of tens of billions of dollars.
It's called "repatriation" of profits. It goes something like this: "we (meaning, big corporations) made a whole bunch of money overseas and we've parked it over there because we didn't want to pay our fair share of taxes. But, out of the goodness of our hearts, if you give us a tax break, then, we will bring the money back to help all our poor citizens". Instead of paying the 35 percent corporate tax rate, these corporate evaders want to pay 5.25 percent--which is almost free money.
The Financial Times reports today that the campaign is gathering steam:
US multinational companies are clamouring for a tax holiday to repatriate billions of dollars "trapped" overseas but are being rebuffed by Barack Obama’s administration.
JPMorgan research estimates that 30-40 per cent of the almost $1,000bn in cash held by non-financial S&P 500 companies is in foreign jurisdictions...
"We do have overseas cash and we would be very supportive of a repatriation holiday," said Keith Sherin, chief financial officer of General Electric. "If you think about it, there is a lot of cash trapped overseas. If companies could bring that back at more competitive tax rates, I think it would be good for the US economy."[emphasis added]
This is a scam. And the Obama Administration should be applauded for, at least for now, opposing the corporate welfare gift.
It's a scam at so many levels.
First, courtesy of Citizens for Tax Justice:
Many U.S.-based corporations currently engage in convoluted tax accounting schemes in order to pretend that they make their profits in tax-haven countries—thus avoiding U.S. taxes on those profits. For example, an American corporation might make sure that some asset, say a logo or a patent, is held by its foreign subsidiary in a country with low or no corporation taxes. The American parent company then "pays" an inflated price to the foreign subsidiary for the use of that asset, and tells the IRS that this expense (the payment for the use of the logo or patent or whatever) greatly reduced or wiped out its gross income, leaving it with no taxable income.
Meanwhile, the foreign subsidiary (which actually might only consist of a post office box) is the alleged recipient of all or most of the profits. Thanks to the rule that lets corporations defer federal taxes on their foreign profits, the parent corporation generally gets to defer paying taxes indefinitely.
Second, cleverly, the corporate lobbyists pushing this idea of free money are trying to use the economic crisis to hold the Congress and the government hostage--an economic crisis caused by some of the very financial firms begging for this taxpayer-sponsored gift. It will be "good for the U.S. economy", they say, because corporations will have a whole lot of cash to then invest in the economy.
But, they already are sitting on a pile of cash--and it isn't going to create new jobs. In fact, we know already that corporations cut hundreds of thousands of jobs and have no intention of bringing back many of those jobs--they've decided to operate with fewer workers.
Moreover, there is nothing in the proposals that has any strings attached to any money brought back: They could easily divert the additional cash to shareholder dividends or--I know we would find this shocking because it would never cross the minds of CEOs--to CEO pay and benefits.
How do we know this? Because we've seen this movie before. CTJ:
Under the amnesty provision enacted as part of the so-called American Jobs Creation Act of 2004, profits were repatriated typically through a dividend made to a U.S. company from its offshore subsidiary, and the U.S. parent company then paid a tax of 5.25 percent on that dividend. About $312 billion of overseas profits were repatriated this way, but this did not have the stimulative effect that lawmakers promised.
- Only a small number of companies actually benefitted. Of the estimated 9,700 companies with controlled foreign corporations, only 843 took advantage of the repatriation tax break.
- Congress utterly failed to ensure that this select group of companies used their repatriated profits to create jobs. The statute required that the repatriated funds be used for "the reinvestment of such dividend in the United States (other than as payment for executive compensation), including as a source for the funding of worker hiring and training, infrastructure, research and development, capital investments, or the financial stabilization of the corporation for the purposes of job retention or creation."
A 2008 study found that there was no positive correlation between a company’s repatriated earnings and an increase in the permitted uses, but did find a positive correlation between the repatriation and increased repurchases of stock (effectively putting the money in the hands of the shareholders) which was NOT a permitted use under the bill.[emphasis added]
A better approach comes from Business and Investors Against Tax Haven Abuse:
End the tax dodging that occurs when a business incorporates in a tax haven, pretending to be a foreign corporation for U.S. tax purposes while, in reality, being managed and controlled from the United States, and taking advantage of all the commercial, educational and other infrastructure financed by U.S. taxpayers.
End financial gimmickry that allows hedge funds to engage in transactions designed for the sole purpose of avoiding taxes on dividends.
Put the "economic substance doctrine," eliminating tax benefits for transactions that have no real business purpose apart from avoiding taxes, in the Internal Revenue Code.
Impose restrictions on foreign jurisdictions, financial institutions or international transactions that are of primary money laundering concern or that impede U.S. tax enforcement.
Increase disclosure of offshore accounts and close foreign trust, equity swap and other loopholes used to avoid or evade taxes.
Do not let them raid the Treasury again.