Sat Jan 5, 2013, 04:03 PM
question everything (26,576 posts)
The Trillion-Dollar Homecoming
From TIME Rana Foroohar
By some estimates, U.S. corporations have $1.7 trillion in foreign earnings stashed under mattresses abroad. Now they and others say they would be happy to bring foreign earnings home--repatriating them, in accounting lingo--if only the U.S. would change its laws and make overseas profits tax-free. This is known as a territorial tax system: only income generated inside the home country gets taxed by that country. Amid the fiscal-cliff debate over individual tax rates, hardly anyone has paid attention to a number of reforms being advocated by Republicans that would shift the U.S. to such a system. (In the short term, business lobbyists are looking for a temporary tax holiday allowing repatriation at a 5.25% rate for a year, an idea supported by a number of conservative politicians and some liberals.)
But while the plan might well goose the stock market, it won't create more jobs. In fact, it might even do the opposite. We know this because we tried it before. Congress enacted a temporary tax holiday on foreign earnings in 2004, and companies did indeed bring about 50% of their foreign cash--some $362 billion at that point--back into the U.S. But the majority of it went not to research or building factories (and certainly not to higher wages) but to the enrichment of investors through stock buybacks and dividend payments.
In any case, the "we would invest in the U.S. if only we had the money" argument doesn't hold water. Given how low interest rates are right now, it's just as easy to borrow to fund capital spending as it would be to pay a 5% tax. As Warren Buffett has said frequently in the past few months, a lack of cash is not hindering job creation. In fact, banks are in need of major corporations to lend to.
Buffett and many other investors believe that if companies are allowed to repatriate money tax-free or at very low rates, it will only speed the pace of outsourcing. If you could make money in high-growth, low-tax locations, bring it home for free and send it right back out, why wouldn't you? Reed College economics professor Kimberly Clausing estimates that moving to a territorial system would send another 800,000 U.S. jobs abroad.
4 replies, 1168 views
The Trillion-Dollar Homecoming (Original post)
|question everything||Jan 2013||OP|
|Royal Sloan 09||Jan 2013||#2|
Response to question everything (Original post)
Sat Jan 5, 2013, 04:15 PM
mbperrin (7,671 posts)
1. Those corporate types are always looking for more welfare.
How about this? For every dollar you have stashed overseas, we'll charge a $2 penalty on your taxes here.
Beg? No. Threaten? Hey, it's the American way with everyone else, so why not greedy business types?
Response to mbperrin (Reply #1)
Sun Jan 6, 2013, 07:19 AM
dixiegrrrrl (37,174 posts)
3. It's a no win situation.
Hit them with a tax, they can and will leave the country. Just as big companies who stay in the USA move their business to "tax friendly" states.
And they will raise prices to offset what they see as an unfair tax.
So we pay thru the wallet.
Levy import tariffs on the goods offshore companies make to sell here, we pay thru the wallet.
Don't hit them with a tax, they stash money out of the country, as they are doing now. We pay thru the wallet.
The problem with globalization is a lot of big American companies no longer feel bound to USA.
They can, and often DO, hire wage slaves from almost any country in the world now, via middle man contractors who provide the ultra cheap,
summertimes illegal, labor.
Response to dixiegrrrrl (Reply #3)
Sun Jan 6, 2013, 12:10 PM
mbperrin (7,671 posts)
4. I'm ready for them to leave the country. Then they can quit soaking up our infrastructure and making
me pay twice -for their stuff AND for their footprint.
Of course, before a company is allowed to exit, they should be charged an exit tax, sufficient to pay all the infrastructure they've used, but not yet paid for, to get where they are.
So - educations for their employees and managements, grid and road improvements to accommodate their business locations, unrecovered environmental cleanup costs associated with their departure, local effects on property values of their neighbors, and any and all other externalities associated with their move.
AFTER they pay that in cash, they're free to go.
The only reason it's a no-win right now is because we give them BREAKS to relocate. Only makes sense to a paid for government to do it that way.
The biggest mistake in American economic thinking in the last 40 years is the idea that we need any particular company to exist. They're all fungible, and we need to start treating them like that. If they don't bring benefit to the country, they need to be killed off.
Of course, sometimes, these moves don't work out. Check out some of the London traders who went to Spain, spent millions refurbishing offices and the like, and then discovered that they could only get about 10% of the internet connectivity they needed, so they had to move back. Woops.
But yes, it's a huge problem, so I say let them go. If I have to pay anyway, I don't have to have their great steaming piles of shit next door, at least.