I work 2nd/3rd shift so I tend to be awake in the early hours of the morning. Usually, if all goes well, my day ends watching a little "Morning Joe" on MSNBC, and a little "Squawk Box" on CNBC. So, last week, like normal, I was watching. The guests were John McCain on "Squawk Box", and Hermain Cain on "Morning Joe" respectively. I was getting a little tired, but I figured 'Hey, why not watch McCain slide further into irrelevance, and why not watch Herman Cain skirt tough questions about his loathed 9-9-9 plan?'. Quick aside here, am I the only one that thinks Hermain Cain has spent too much time peddling pizza? C'mon, 9-9-9? Doesnt that sound like the 5-5-5 deal Dominoes used to have? Even Grover Norquist and I agree when it comes to Cain's plan. It is ludicrous, unworkable, and unpassable. Good thing cain has no chance of winning. Whew! But lets move on past the ridiculing of Hermain Cain, even if it is the most fun Ive had all day.
So John McCain was on "Squawk Box", and he began spouting the ever popular line about repatriation of offshore dollars. The "esteemed" Senator rambled on and hit the predictable talking points:
1. There is money just sitting there offshore doing nothing.
2. This money would be better spent at home.
3. This money will create jobs.
4. This money will somehow spur a new fury of economic activity.
Now, anyone listening to McCain would think he had a very precise, logical point. Well, at least they would think that if they had done no investigation into past attempts at repatriation. I must admit, bringing home $1.2 trillion sounds great. Why wouldnt it? Idle money begins to be circulated, which could lead to jobs, etc. It makes sense on paper, but in practice it is clear that the true culture of business rears its ugly little head.
Last week, The Senate Subcommittee on Investigations released its report detailing the effects of the 2004 repatriation holiday. The report, titled "Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals, explained what actually happened with repatriated funds versus what was expected. In a memo to Sen. Chuck Schumer, the title read: 2004 Repatriation A Failed Policy. In my opinion, the title of that memo hit the nail on the head.
Here is a link to the report
For those of you looking for a quick rundown, here goes:
-2004 America Jobs Creation Act dropped tax rate from 35% to 5.25% on cash assets stored offshore.
-$312 billion was repatriated. $3.3 billion in estimated taxes were avoided.
-"The American Jobs Creation Act essentially provided guidelines on four uses of repatriated funds: two – using funds for jobs and research and development -- were encouraged, while two others – using funds for executive compensation and stock buybacks -- were prohibited."
-"The evidence presented in this Majority Staff Report, however,
shows that, rather than producing new jobs or increasing research and development expenditures, the 2004 repatriation tax provision was followed by an increase in dollars spent on stock repurchases and executive compensation. In addition, the repatriation tax break created a competitive disadvantage for domestic businesses that chose not to engage in offshore operations or investments, and provided a windfall for multinationals in a few industries without benefitting the U.S. economy as a whole."
-The top 15 repatriating corporations brought home $150 billion (roughly 48%), but had a reduction of their combined workforce by nearly 21,000.
-A broader study of 840 repatriating corporations also showed no net gain in employment.
-Research and Development expenditures did not increase as exepected.
-Stock repurchases increased after repatriation. Remember, this was a prohibited activity. Buybacks increased by 16% in 2004-05, and 38% in 2005-06. Each dollar of repatriated cash generally meant somewhere between a 60 cent and 92 cent payout to stockholders.
-Executive compensation increased after repatriation. This was also a banned activity. Compensation at the top 15 repatriating corporations increased 27% in 2004-05, and 30% in 2005-06.
-Only a small amount of companies with strong overseas prescence benefitted.
-Most funds came from offshore tax havens.
-Since the 2004 repatriation, offshore tax shelters have seen a great increase in cash inflows.
My brief summary does not do the report justice, so if you do not have time to read it now, I would bookmark it or download it and read it when you have a chance.
I think little more has to be said. Repatriation has failed before. History repeats itself if we dont learn from our mistakes, and I think we can all agree that the 8 years of Bush economics were a mistake. Repatriation will kill jobs, not create them. Corporations already have $2 trillion in cash reserves. Apple has more cash on hand than the Government. They have the money to create jobs.
The time has come to close offshore tax havens and stop giving unfair advantages to corporations that spend a great deal of time trying to not play by the rules. Capitalism is great when it is executed properly. Creating these unfair advantages kills small business. It destroys "Main Street". And, In my opinion, its as un-American as it can get.