(X-posted at ACT NOW)
Who needs a gift this holiday season? Multinational corporations. After all, they’re people, too.
That’s the logic behind the unlikely marriage of House Majority Leader Eric Cantor (R) and New York’s own senior senator, Chuck Schumer (D), who are jointly leading the charge to grant American corporations a “tax holiday.” And their effort is “gaining momentum,” according to Roll Call, with 73 congressional co-sponsors. (I feel like all I do these days is bash New York Democrats.)
Yes, that’s right: the same Congress that nearly failed to grant a two-month extension to payroll tax cuts for workers at the price tag of $30 billion is contemplating excusing corporations from taxes on an estimated $1.4 trillion in profits.
Why haven’t they paid taxes on these profits already? Because they earned them through offshore subsidiaries, often in tax havens such as Lichtenstein, the Caymans, Switzerland, and Bermuda. Under U.S. law, if they “repatriate” those profits back to their American parent company, they have to pay corporate taxes. So, instead, they just sit on the profits, waiting for the moment when American politicians are gullible, corruptible or desperate enough to let them bring the profits back tax-free. Merry Christmas!
We’ve been down this road before. In 2004, Congress passed a similar tax holiday under the banner of spurring jobs and investment. Here’s what a report from the right-wing Heritage Foundation found:
"Congress passed a similar tax holiday in 2004, and produced the expected immediate results—the return of a significant amount of foreign earnings to the United States. However, the evidence is clear that these repatriations did not produce the hoped-for subsequent surge in domestic investment."
According to the non-partisan Center for Public Integrity, in 2004, of the 843 companies that repatriated $362 billion, only 15 firms accounted for more than half of the total value of the benefit. The biggest five — Pfizer, Merck, Hewlett-Packard, Johnson & Johnson and IBM — brought back $88 billion. That's real money.
The holiday also rewarded those who were using offshore funds to dodge taxes in the first place. Among the firms most likely to participate in the tax holiday were many that regularly stash their earnings in tax havens. The countries of incorporation with the largest percentage of repatriated funds under the 2004 law included the Netherlands, Switzerland, Bermuda, Ireland, Luxembourg and the Cayman Islands.
In many cases, the money was moved through shell companies, often just mailbox drops, that had no employees or physical assets.
Intel and Coca-Cola, the Senate inquiry determined, used shell companies in the Cayman Islands. Proctor & Gamble used a holding company in Bermuda that had no physical office and no full-time employees. Eli Lilly used Switzerland and the British Virgin Islands. Oracle employed an Irish subsidiary.
The very conceit of the "investment and jobs" argument is nonsensical. As even Heritage points out, to believe that additional capital would spur investment, one would have to believe that American corporations are currently capital-constrained. That is, that there are loads of great investment opportunities just waiting for a business with enough capital to invest. Here's the problem: corporations are not capital-constrained. In fact, they are already swimming in record levels of cash on their balance sheets, currently totaling $2.1 trillion.
Despite overwhelming evidence that tax holidays don't spur economic growth -- and cost taxpayers mightily -- the so-called “The Freedom to Invest Act of 2011” in the House and the “Foreign Earnings Reinvestment Act” in the Senate are gaining support. Why? Might it have something to do with the $940,000 that co-sponsors have received in campaign contributions from the bills' corporate backers since 2009?
Even the reliably liberal Senator Barbara Boxer (D) is pushing the bill: "By bringing back the more than $1 trillion that’s sitting overseas, we will create jobs, strengthen the economy and reduce the deficit.” Apparently, in a strange twist on the Laffer Curve, by foregoing tax revenues, the federal government will reduce the deficit.
Who is pushing this latest corporate charity through Congress? It's the so-called "WIN America Campaign," whose primary stated concern is "getting Americans back to work." (They are certainly putting lobbyists back to work, having spent at least $380,000 to lobby Congress in the first nine months of the year.) Check out their website. It's brimming with stock photos pulled out of a PowerPoint for Dummies. (Maybe that's because Microsoft is one of their many corporate backers.) Plus, it's got a "blog," full of pieces by "WIN America Staff," none of which have any comments. (To help them start the grassroots conversation, I've just posted a comment to their "blog." It's "awaiting moderation." Let's see if they allow it onto their site.)
I'm a big believer in the power of markets (imperfect as they can be) to improve the world. I think that's why this kind of shameless influence-peddling is so upsetting to me: it has nothing to do with producing things that people value, things that, yes, rightly generate profits for companies. This kind of behavior is about creating two sets of rules, one for average Americans and another for those with wealth and connections. It's about taking advantage of our political system and corrupting our democracy, consequences be damned. It's wrong and it's unacceptable.
Currently majoring in Business & Public Policy at The Wharton School's MBA program, Andrew Solomon is one of the founding Board members of ACT NOW. He oscillates between voicing views that earn him censure and biting his tongue for the good of all (including himself). He summarizes his political philosophy as "progressive ends, pragmatic means." You can reach him at solomon [at] actnowny.org. More by Andrew at http://www.actnowny.org/