Third Party & Independents Archives

Congress eyes increasing corporate welfare via another ‘tax holiday’

Did you know that the Obama administration – fueled by about two dozen Republicans in Congress and the lobbyists for Microsoft, Oracle, Pfizer, Apple and several other major firms – are pushing for a corporate tax “repatriation” holiday? The plan is to give select multi-national corporations “special dispensation from tax laws” on the more than $1 Trillion in cash the companies are storing in overseas banks that isn’t subject to the statutory 35 percent corporate tax rate.

The pitch is that if the companies will bring that cash back to the United States – with no fear of being taxed on it – then the companies will use that money to create jobs. Members of a very Wall Street-friendly think tank are touting the idea as yet another “stimulus” to create jobs – even though not one supporter of the plan has been willing or able to show exactly HOW this tax break will create a single job.

The plan is widely viewed by economists, tax experts and hundreds of thousands of small business owners as yet another useless government giveaway to a handful of multinational corporate behemoths in the never-ending corporate welfare of Washington.

The lobbyists, and the politicians they own, are pushing to inject the holiday into congressional negotiations about raising the federal debt ceiling. That’s right, they are angling to hide the plan deep in the already obfuscated debt ceiling proposals. They say that if Congress will grant companies a one-time tax holiday, allowing that money to be brought back to the states at a rate of about five percent – or less – companies would be willing to do it.

The trouble is, this has been done before, and it didn’t work. In 2004, Congress approved almost the exact same plan. A total of 364 companies brought back $284 billion of overseas cash for the 2004 tax holiday. But even during the economic boom years of the housing bubble, the fresh cash did not create new jobs or investments. Instead, companies simply used the cash to enrich their shareholders, using the money to buy up their own stock, driving share prices higher.

A 2009 paper by three researchers with the National Bureau of Economic Research came to a similar conclusion: “A $1 increase in repatriation was associated with an increase of almost $1 in payouts to shareholders.” Dollar-for-dollar, the money brought back to the U.S. went right into the pockets of investors and corporate executives.

What’s more, an April analysis from the Center on Budget and Policy Priorities found that 10 of the biggest players in the “WinAmerica Coalition” are coveting a combined $52 billion in domestic cash. The money’s already here, and it’s not being used to create jobs or infuse the U.S. economy. If the companies aren’t using the excess cash they have now to create jobs, they sure as hell aren’t going to spend any “free” money they bring in from overseas on jobs, either.

Big corporations have long stashed assets in tax haven countries like the Cayman Islands or the Bahamas that feature low tax rates so they can avoid paying taxes in the U.S. Even when firms are conducting their actual business within U.S. borders, having an address in a tax haven nation let’s them sit back and laugh at the IRS. According to a 2008 report by the Government Accountability Office, 83 of the 100 largest American companies operate subsidiaries in nations identified by the GAO as tax havens. Of the 10 companies currently lobbying hardest for the tax holiday, four – Apple, Cisco, Microsoft and Pfizer – operated a combined 572 sub-companies in tax shelter countries.

The plan also includes the call to reduce the corporate tax rate from its current 35 percent to 5 percent, permanently. That an 85 percent reduction. That’s 85 percent LESS REVENUE. This is the ingenious plan to tackle the federal debt? Systematically reducing the amount of money available to pay it? Gosh … I can’t imagine why anyone who owns a calculator or can do simple 1-to-100 math in their head would think this is a bad idea.

While the Congressional Budget Office has not analyzed the implications of such a move for the federal budget deficit, the Joint Committee on Taxation, a nonpartisan congressional committee focused on tax policy, has. The committee’s conclusion? “Bringing the money back” would actually COST the government $78.7 billion over ten years, as companies scored a sweetheart tax deal on cash they planned to bring back to the country anyway. Investing it in infrastructure, helping small local business – there’s a lot of things the federal government could do with $80 billion instead of throwing these major corporations another fat-covered bone. Anyone who thinks the companies won’t just dividend it out, buyback stock, or use it to give their executives more bonuses is just fooling themselves.

As corporate titans lobby for tax breaks, programs for small firms are being strangled. The Obama administration’s proposed 2012 budget would cut funding to the Small Business Administration by 45 percent, and cut the P.R.I.M.E. Program, which provides $5 million worth of grants a year to entrepreneurs seeking technical training on how to begin hiring more employees.

Why am I personally upset about this? Because all three times I applied for grants and federal business assistance for the company I started in 2009, I was told my company (an LLC of two employees) was “too small to qualify for federal assistance.” We didn’t have enough capital on hand to qualify for programs. If we had cash on reserve, we could get loans or grants from the government.

You follow that, don’t you? The small business assistance operations of the United States government told me that my small business couldn’t get assistance because we needed it too much. If we didn’t need money, we’d be able to get money.

Early this year, the tax holiday proposal seemed politically dead in Washington because it was clearly a stupid move in the face of the federal budget deficit and continued anger over the bank bailouts. But today the idea has more momentum. Of course, the $13.7 million in lobbying money that has been poured into Washington by just 13 companies in the “WinAmerica Coalition” in just the past six weeks … that has nothing to do with the “renewed interest” in the plan, does it? But the coalition has that flag-wavey, uber-patriotic name, so it just HAS to be good for “real Americans,” right? It couldn’t possibly be just another money-making scheme for billionaires that the stupid, unquestioning couch potatoes of America wouldn’t ask for details about, couldn’t it? (That’s sarcasm, in case it wasn’t coming across.)

Like I said, if you don’t need the money, you get the money.

It’s the core operating procedure of the United States government.

Posted by Gary St. Lawrence at June 22, 2011 11:18 AM
Comments
Comment #324806

Interesting article GST; why do you suppose Canada and other nations have cut their corporate taxes?

http://www.cnsnews.com/news/article/lowering-us-corporate-tax-rate-10-percen

http://www.taxfoundation.org/news/show/24980.html

Do you feel the same way about the Obama administration giving obamacare waivers to select corporations and unions?

Posted by: Mike at June 22, 2011 12:15 PM
Comment #324807


The sword of taxation hanging over the corporations takes a little bling out of the record profits celebrations.

And, Breitbart was worried that Weiner might be blackmailed.

Posted by: jlw at June 22, 2011 2:16 PM
Comment #324817

No, the sword of taxation is hanging over the heads of Americans who are looking for work, but there are no jobs because corporations are living in a world of uncertainty…

Posted by: Mike at June 22, 2011 5:48 PM
Comment #324824

With taxes at their lowest levels since the Truman Administration, the sword of taxation seems to be rather blunt.

Posted by: Warped Reality at June 22, 2011 6:47 PM
Comment #324825

Gary

It is hard to say what creates jobs and what doesn’t. You mention the last time was 2004. The year after that unemployment dropped to 5.1% and it was 4.7% next. I don’t know about you, but either of those numbers sounds better than 9-10% we have had since the early Obama days.

“Instead, companies simply used the cash to enrich their shareholders, using the money to buy up their own stock, driving share prices higher.”

Most Americans own stock directly or through pension funds. It is a good thing is shareholders get richer, since that means that most Americans get richer.

Posted by: C&J at June 22, 2011 6:51 PM
Comment #324830


Gary, the Republicans like to brag about how good their economy was in the mid 2000’s, before quantum leaping over the time their chickens came home to roost, to get to the Obama economy. Why not, considering the attention span of the American people.

The Republicans stimulated the economy as well. They called their stimulus the Bush tax cuts and like the current stimulus, every bit of their stimulus went straight into increasing our national debt.

All of a sudden, the Republicans saw the light, and have determined that to save America from crushing debt, the social safety net must be privatized or eliminated.

Meanwhile, members of Congress are bragging themselves up for cutting the 682 billion dollar military budget by 6 billion. A military budget, which in reality, reflects about two thirds of the tax dollars spent on defence related matters.

Posted by: jlw at June 22, 2011 8:54 PM
Comment #324835

The FED is holding interest near 0% and downgraded GDP from 3.5-4.2 to 3.3-3.7% with no plans for a QE3.

http://www.washingtonpost.com/business/economy/fed-says-economy-is-slowing-will-let-bond-program-expire/2011/06/22/AGPzYzfH_story.html#weighIn

Average worker wages up 26% since 1970, over some 40 years, while executive pay is up something like 436%. Since 1970 inflation has gone up 482%. The inflation rate for May was 3.6% but in reality, more like 8-10%.

http://www.billdawers.com/2011/06/19/washington-post-tackles-increasing-income-inequality-in-america/

Open borders for more years than I can recall bringing in millions of illegal immigrants by plane, boat, and foot.

So, it appears the plan to lower your wages is pretty much on schedule. This info is suggesting you probably won’t be finding a job or buying a house for several years out.

Otherwise - - -

Posted by: Roy Ellis at June 22, 2011 9:58 PM
Comment #324836

Warped Reality, I’m sure you understand we don’t live in the same world we lived in during Truman’s presidency. We live in a global economy which requires close attention to be paid to taxes, if one country is to compete with another. During the Truman administration, the industrial might of most European countries had all but been neutralized, and we were at war. The third world nations did not have industrial capability as they do today. Tariffs were required when importing products; all of these things have changed today. The point is; you cannot compare the corporate taxes of today with those of 6 or 7 decades ago. But if you will notice the earlier links, you will see many countries dropping their tax rates in order to boost the economy. This goes against everything today’s progressives believe; but when the economy gets bad enough, the subject of cutting corporate taxes always comes up. There are two choices: lower the taxes and stimulate the economy or raise the taxes and retard the economy.

“The Kennedy tax cuts

President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).”

President John F. Kennedy was probably one of the last Democrats who really understood the economy and he stated:

“Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”

“The Reagan tax cuts:
Thanks to “bracket creep,” the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).”

http://www.heritage.org/research/reports/2003/08/the-historical-lessons-of-lower-tax-rates


Posted by: Mike at June 22, 2011 10:29 PM
Comment #324842

Mike,

Most of the increased tax revenues during the Reagan years were the result of an increase in taxes. Yes, the entitlement fix in 1983 dramatically raised payroll taxes in order to not only fund the entitlements on an ongoing basis but to also create a large surplus which would be available to fund the future baby boomer retirement period. Separate out the payroll tax revenues and you get a different picture.

It should also be noted that the increased revenues from income tax were not sufficient to offset the loss of revenue due to the cuts. We ran a huge deficit during Reagan’s years. David Stockman, Reagan’s budget director during the first years in office, has repeatedly debunked the claim that the tax cuts actually resulted in a net tax revenue gain.

As Warped as previously pointed out, tax rates are already at the lowest level since the early 50s. In terms of taxes as a percentage of GDP, we are currently well below the average over the past 50 years. On an international comparison, the US is one of the lowest taxed nations in the major OCED countries.

In times of economic crisis, it makes sense from a Keynesian fiscal perspective to put more government money into the economy. Tax cuts are a backdoor way for government to stimulate the economy if it continues to spend at a given level while simultaneously cutting taxes. That was really the Reagan approach. He didn’t cut government spending when he initiated the tax cuts. In fact, he increased government spending with the result being a huge jump in the deficit and national debt. The result was the same from a fiscal perspective, as if he had simply initiated a stimulus package as Obama has done.

If your interested in balancing the budget and reducing the debt, Reagan isn’t your model. That is not to say that Reagan was wrong. But simply to point out that what he did is different than the rhetoric. Reagan, in my opinion, was more pragmatic and situational than generally acknowledged by conservatives or liberals. Its a shame that today’s emulation of Reagan’s policies are based more on a myth than reality.


Posted by: Rich at June 22, 2011 11:52 PM
Comment #325038
Rich wrote: “Its a shame that today’s emulation of Reagan’s policies are based more on a myth than reality.”


I nominate this statement for this month’s “That’s it in a Nutshell” Award.

Posted by: Gary St. Lawrence at June 27, 2011 10:30 AM
Comment #325065

The biggest reason why the tax holiday is a waste of time is because we’re not addressing the root problem, which is why companies are moving profits overseas in the first place. The tax holiday proposal is a typical government “solution” which addresses the symptom, not the cause. The reason companies that can afford to do so are playing the international shell game is because of our punitive tax system. Why pay 35% when you can pay 12% (or less)? In the end, it’s really Consumers that pay for it anyway, so why do we insist on making it so complicated for businesses that they choose to take their business elsewhere?

Simple solution: Broaden the base by removing all tax credits, deductions and loopholes, while lowering the rate accordingly to keep it revenue neutral. This levels the playing field for all businesses and removes some of the incentive for some to move profits overseas. Ultimately, rates will need to be lower to remove the rest of the incentive, but we’ll have to step more slowly into that one since we rely pretty heavily on corporate income tax revenues. Over time as economic conditions improve, we can find a reasonable level of corporate tax rates that makes it more attractive for businesses to do business and create jobs here, while at the same time, maintaining a reasonable level of tax revenue that doesn’t overburden Consumers.

Posted by: Kevin at June 28, 2011 2:26 PM
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