This remains a bad idea:
Senate sources tell Fortune that Sen. Chuck Schumer (D-N.Y.), the No. 3 Democrat in the chamber and a one-time opponent of the holiday, is testing his colleagues' interest in marrying the [tax repatriation] proposal to a new infrastructure program.
The idea is to encourage corporations keeping a collective total of more than $1 trillion parked abroad to bring it home by temporarily lowering the tax rate to about 5% from 35%. The tax receipts from that holiday then would be dedicated to an infrastructure bank that would help fund new building projects.
Sure, take as much as you want
What Schumer is talking about here is a corporate tax "holiday" that allows companies to bring their offshore earnings back to America while paying only a fraction of the taxes they would usually pay. It's an idea that has been done before, and is currently being floated by a number quite profitable companies (including Google, Microsoft, and, sigh, Apple) that would really
like to bring their sweet, sweet profits back to America, but their profits are too frightened right now because of our scary insistence about that whole
paying taxes thing, and so those profits insist on remaining huddled in their warm, comfy offshore accounts.
This tax holiday idea has recently been considered a nonstarter, primarily because it is Stupid. The tradeoff Schumer is signaling a willingess to make, however, is to exchange this giant boondoggle of a corporate tax holiday for about $50 billion worth of desperately needed stimulus – the amount of taxes expected to be raised by the move. He figures, perhaps rightly, that the only way to get Republicans to be even remotely tolerant of a job-creation program is to marry it with the only thing they do care about: corporate tax cuts. (Republican Boy Genius Paul Ryan has joined other Republicans in saying the giant windfall for companies would be a dandy idea, though not even that is big enough for his tastes. I will pause for a moment here so that we can all regain our composure after such shocking news.)
There are several problems with this. The first is that it's a giant money loser, of course, and punches another deficit hole for the GOP to whine pitiably about in the near future (unless there is a Republican president at the time, in which case they'll go back to not caring.) But the second is that the presumption of ongoing tax holidays itself changes corporate behavior, essentially encouraging them to offshore profits in order to launder them later through the next temporary "tax holiday":
[T]he 2004 tax break also wound up increasing the amount of money corporations stow offshore, as they parked even more of it there in the hopes that Congress would approve another holiday somewhere down the line:
Research by Northwestern’s Brennan indicates companies rationally concluded that if they were granted one special one-time tax break, they might very well be granted another. That gave them the incentive to attribute even more of their profits to foreign operations, like a shopper waiting for an end-of-season sale. By the end of 2006 the total “permanently” reinvested abroad had exceeded the 2004 peak. It has continued to grow since.
Of course, it makes sense that corporations would simply leave money overseas, rather than pay the statutory tax rate, if they are convinced that Congress will continue to approve misguided tax breaks over and over.
Pretty much.
Oh, and the third problem? Turns out creating this pattern of predictable corporate windfalls doesn't do much for America either:
Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage.
Though the tax break lured them into bringing $312 billion back to the United States, 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.
This money comes from overseas operations and in some cases accounting maneuvers that shift domestic profits to low-tax countries. The study concluded that the program “did not increase domestic investment, employment or research and development.”
Indeed, 60 percent of the benefits went to just 15 of the largest United States multinational companies — many of which laid off domestic workers, closed plants and shifted even more of their profits and resources abroad in hopes of cashing in on the next repatriation holiday.
So the advantage: Schumer thinks he maybe can get a small amount of stimulus out of the Republicans in exchange for this. The disadvantages: it bleeds the United States of money, it encourages companies to launder money through overseas divisions simply for the tax breaks, it provides direct financial benefits only to the investor class, and it even encourages more offshoring of jobs and industries by creating a direct incentive for American companies to move their operations out of the country.
We need more stimulus, yes. But there simply has to be a point at which we're no longer willing to acquiesce to all these incredibly damaging giveaways to the rich and the corporate in order to gain some hoped-for small sliver of rational governance in return. Apple and the other companies should just pay their damn taxes.