Here It Comes: Democrats Considering "Tax Repatriation Holiday" Economic Massacre

Tyler Durden's picture

Here comes the headless horseman cavalry:


How the second sound bite makes any sense, we will need to ask someone with a full frontal lobotomy. What revenue? Where it is coming from? Doesn't Schumer have some Chinese currency manipulation bill he has to be submitting to Senate for the nth time instead of boosting multinational EPS through buybacks, while killing even more US jobs? Luckily it was just yesterday that we discussed that this whole process will do nothing at all to boost jobs as captured best by
Kristin J. Forbes, an MIT economics professor who was on the Bush team
back when the Homeland Investment Act in 2005 was enacted, who said: "For every dollar that was brought back, there were zero cents used for additional capital expenditures, research and development, or hiring and employees wages." Another economic disaster in the making, brought to you by the clueless captain of this country.

Full post from yesterday on this very topic:

The Lost Cause That Is Tax Repatriation, Or The Folly Of The Homeland Investment Act Part 2

Just like back in January when rumors of tax repatriation holiday
started creeping up, the past week has seen a surge in speculation that
the Homeland Investment Act part 2 may be coming back. Unfortunately,
neither now, nor in January, nor during the original HIA back in 2005,
did this tax repatriation of billions in cash do absolutely anything to
stimulate the economy, and in fact the waves of layoffs that followed
likely added to the weakness that would become apparent with the
December 2007 transition into the Second Great Depression. Yet that will
not stop big multinational companies from lobbying for this one time
gift which will allows management teams to buy back shares, and lock in
individual profits on their insider holdings (certainly expect an unseen
wave of insider selling in the aftermath of a HIA 2 should one be
implemented). As for the economic rationale, there is none. We discussed
this back in January and February extensively, but for hose who may
have forgotten, here is a good recap courtesy of David Rosenberg's
latest leter to clients.

Tax Breaks for Companies

a time when nearly half of the ranks of the unemployed have been
looking for work fruitlessly for at least six months, and a time when
they are about to lose their long-term jobless benefits, it is amazing
to see so many folks out there calling for the White House to stimulate
the economy by allowing businesses a form of tax holiday to bring home
their locked-up profits from abroad. This is being touted as a low-cost
scheme to get the economy moving (the NYT had a good article on this
proposed strategy yesterday).

First off, the major contributors
to employment are small businesses, and they don't have locked up
earnings abroad — they are paying their 35% top marginal rate rather
than avoiding it. Second, the Bush team tried this gimmick in 2005 with
absolutely no impact on capital spending or employment growth, though it
sure did help out on the stock buyback programs and divided payouts. So
would it be good for the stock market? Very likely. But a lot of this
locked-up cash sitting abroad is centered in the pharma industry and as
such it was nifty to see how the NYT tracked what Merck did with the
$15.9 billion it brought home back in 2005 — "according to regulatory
filings, though, the company cut its work force and capital spending in
this country in the three years that followed."

Here is what
Kristin J. Forbes, an MIT economics professor who was on the Bush team
back then (and led a study by the NBER showing there to be little impact
outside of helping reduce the deficit temporarily) said on the matter:

every dollar that was brought back, there were zero cents used for
additional capital expenditures, research and development, or hiring and
employees wages.

Quite an admission of failure. It
does stand to reason as to why such a policy today would have any impact
since this is not exactly a business sector that is starving for
liquithty as it is.

And below we repost some of the salient points from Citi's Steven Englander who essentially said the same thing 6 months ago:

HIA-2 under discussion

  • HIA
    is attractive as a way of reducing effective corporate taxes
    temporarily and improving the tone of the US corporate sector, but the
    direct impact on investment and employment appears limited
  • The total flows are likely to be much higher than in 2005
  • The non-USD share is less certain but may be somewhat lower
  • Central banks may see this as a golden opportunity to diversify

renewed program to allow repatriation of foreign profits at favourable
tax rates is again under discussion in the context of broader corporate
tax reform. Proponents argue that it provides inexpensive stimulus to
the US economy at a limited budget cost. Opponents argue that it
provides few practical benefits; rather it creates incentives to keep
earnings abroad in anticipation of subsequent rounds of HIA (Homeland
Investment Act – the actual name of the bill was the American Jobs
Creation Act of 2004, but we will use HIA-1 to refer to the 2004 bill
and HIA-2 to refer to any prospective 2011 measure).

And the pros and cons:

The disadvantages:

  1. In
    2005, HIA-1 delivered much less in direct employment and investment
    than promised. For example, see “Tax Incentives and Domestic Investment:
    An Empirical Analysis of the Repatriation Decisions of U.S.
    Multinational Corporations Following the Implementation of the Homeland
    Investment Act of 2004” Michaele L. Morrow, Ph.D,. Dissertation, Texas
    tech University, May 2008, or “Watch What I Do, Not What I Say: The
    Unintended Consequences of the Homeland Investment Act “ J Dhammika
    Dharmapala, C. Fritz Foley and Kristin J. Forbes, Journal of Finance,
    forthcoming (2011).
  2. Under HIA-1, the incentives to increase
    employment and investment were limited. The major impact of HIA-1 was to
    allow foreign earnings to be repatriated at low tax rates, with few
    binding additional requirements. From firm’s point of view, HIA-1 was
    equivalent to a lump-sum tax benefit which would generate additional
    investment and employment primarily in cases in which firms had
    restricted access to credit markets. Firms with large amounts of profits
    abroad probably could borrow domestically for hiring or capital
    expansion so would not have been constrained in their prior investment
  3. Crafting a bill that increases direct marginal
    incentives for employment and investment is difficult. If the
    requirements are too stringent, firms will simply pass on repatriation.
    If firms are already unconstrained with respect to hiring and
    investment, a marginal increase may bring forward investment plans into
    2011, with some payback in subsequent years. If the terms are relatively
    lax, as in HIA-1, the impact on direct employment and investment will
    be small.
  4. The firms that have the money abroad (tech, pharma)
    are not the sectors that need the most balance sheet help (households,
    real estate, state and local government) nor does it help firms whose
    operations are primarily domestic.
  5. Repeating HIA produces
    incentives for firms to keep funds abroad. There is the risk that firms
    will see HIA as a once or twice a decade low-tax repatriation
    opportunity. The extent of these incentives depends on the gap between
    US domestic and foreign tax rates. The combined effect of HIA plus a
    reduction in US corporate rates would largely mitigate these incentives.
    Surprisingly, BEA data suggests that until the possibility for HIA-2
    emerged again in early 2009, the aggregate dividend repatriation rate
    was not much lower than it had been prior to HIA-1(Figure 1), and the
    low repatriation since 2009 could also reflect limited US investment

The advantages:

  1. HIA-2
    presents an opportunity for the Obama Administration to demonstrate its
    commitment toward a more business friendly approach to an important
  2. HIA-2 eases access to funds that are viewed as
    locked abroad to some degree. A corporate tax system that encourages
    firms to keep cash abroad while borrowing domestically is arguably less
    than optimal.
  3. The sums involved are substantial. There are
    estimates of up to USD 1 trn kept abroad - roughly half the cash
    currently held by US corporates. Data from the BEA shows USD1.2 trn of
    un-repatriated earnings since 2006, significantly more than had been
    accumulated over the 1990-2004 period (Figure 2).
  4. The tax
    costing can be relatively benign because the low tax rate is largely
    offset by the increase in flows. The repatriation flows in response to
    the lower corporate tax rate are so high that they largely pay for
    themselves (in subsequent years, costing depends on how much flows are
    expected to be reduced by anticipation of future HIA)
  5. In
    contrast to 2005, improving balance sheets and financial statements is
    higher on the list of policy priorities. One of the Fed’s stated
    objectives in QE2 was improving the attractiveness of other asset
    markets relative to the bond market, so in 2011, balance sheet
    improvement can be viewed as a macroeconomic policy goal.
  6. 2005
    was one of the best years of the decade in terms of asset markets and
    growth so indirect effects may have been large. It is hard to pin down
    these indirect effects (and obviously there were broader macroeconomic
    forces at play) but 2005 was a year of strong employment and investment
    growth (Figure 3), a strong USD, and sharply revised expectations of how
    quickly the Fed could normalize rates. From the time the bill was
    passed in late 2004 till the end of 2005, expectations of Dec 2005 short
    rates rose from just over 3% to 4.5% (Figure 4).
  7. No one’s ox is
    gored, at least not directly. It is difficult to craft a stimulus
    package that is relatively cheap in budget terms and which provides
    broad stimulus and that does not carry a well-defined set of losers.
    Especially if combined with broader corporate tax reform that narrows
    the gap between US and foreign corporate tax rates, HIA-2 may be viewed
    as more attractive and practical than other more theoretically
    attractive stimulus measures.

Lastly, for all those who believe that HIA 2 will be an unequivocal benefit for the S&P, this piece by Goldman Sachs from January
reminds that the biggest impact from all that fund flow will likely
serve as a major catalyst for USD strength. Recall that nothing in the
current centrally planned market is more important than the weakness of
the USD. If indeed, the HIA 2 is contemplated as a short-term boost to
the S&P, will it backfire even with that modest purpose of making
the mega rich even richer? Goldman seems to think so.

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alien-IQ's picture

redefining "stupid" one sound bite at a time.

bigdumbnugly's picture

schumer needs an exorcism.  pronto.

mkkby's picture

It's less than 0 jobs -- it's a loss.  Why?  Because it puts small/medium sized businesses at an even greater structural disadvantage.  Every one of them should close or relocate to Bermuda immediately.

And why would any company do business on shore and pay 35% taxes, when they can go off shore and pay 5%?

The money will go toward executive bonuses for the "great" work they did lobbying for this.

TruthInSunshine's picture


This is ex-Reagan Budget Director David Stockman on the Dylan Ratigan show today talking about failure of Bernanke, QE1 & 2, etc., and the Greatest Heist ever by Wall Street from Main Street, and is EPIC.

Tyler - can you please make this a separate article with video?


b-rad-is-rad's picture

Thanks for the link. Good stuff.

Bay of Pigs's picture


I was pretty harsh on Stockman on a different thread awhile back. I thought he was just trying to deflect his own involvement in the Reagan Admistration's disgraceful budget deficit issues. 

But after watching that, let's just say I am happy to see him teeing off on the Wall St. crime syndicate and he has my support on that going forward.

TruthInSunshine's picture

b-rad & BayofPigs -

Can either of you email that link and note to Tyler with the video link to Zero Hedge at

My persona non grata email is down at present.

BayofPigs - I was similarly harsh on Stockman when he spoke of the debt ceiling issue, but he really summed up the failure that is Bernanke and the kleptocracy Bernanke, Paulson and Geithner have empowered, as well as or better than anyone else I've heard speak in such a short period of time.


Thanks guys.

Antarctico's picture

It's got what plants crave!

GetZeeGold's picture


Electrolytes seem to be the answer here.


grimey's picture

I think he meant he would buy himself a new car

TruthInSunshine's picture

Chucky Schumer IS Wall Street's representative.

He is their man, 100% of the time, Johnny on the SPOT.

It all makes sense.



chancee's picture

Yes, in case anyone is wondering, the market is being propped up by SPY right now to prevent a washout into the close.

Rodent Freikorps's picture

Strangely, despite being a Democrat, Schumer is the cum sucking errand boy of the big banks.

Look at his record. I dare you.

He is the reason, I will stand aside if you pogrom the Jews. If they are stupid enough to support this walking pile of human excrement, you can have them.

However, if you go after Israel, I'd still be happy to shoot you in the face.

TruthInSunshine's picture

How is it strange that any Democrat, whether Schumer or someone else, is an "errand boy" for the banks and Wall Street?

Americans need to wake their asses up, but it will take a far nastier depression to motivate them, if anything is ever able to.

Obama was given far more $$$ than McCain was in campaign contributions by the Wall Street Gang and Banking Lobby, and man, that was money extremely well spent from a ROI perspective.

Rodent Freikorps's picture

And Shillary, and Weiner.

I am God damned sick of being ruled by NYC.

equity_momo's picture

Wake the fuck up son , you arent being ruled by anyone from NY - these people are stooges. Theyre whores. You gotta step back from the trees to see the forest. Wall St?

 These cocksuckers dont care what City Wall St is in , the raping of dumb peons can be instructed from anywhere. Theres as much pain dished out from London for the average dumb Yanky Doodle as there is from NYC. Weiner? Please. No one gives or gave a fuck. Hillary? Shes just another wannabe Zionist doing as shes told.

Iriestx's picture

You're naive if you think this is a problem that can be resolved by voting for either of the two parties.

IdioTsincracY's picture

The premise of a repatriation holiday is that the money brought back will be invested domestically and create jobs. However, corporations used the money from a 2004 repatriation holiday to enrich their executives, not expand U.S. operations. In fact, the companies that benefited most from that 2004 tax break wound up cutting thousands of jobs over the subsequent few years.

But that hasn’t stopped Republicans from calling for a repeat performance. House Republicans have proposed a repatriation holiday that would have corporations pay a 5.25 percent tax rate on any money they repatriate (instead of the statutory 35 percent rate). And the idea evidently has the support of House Budget Committee Chairman Paul Ryan (R-WI), who appeared on CNBC today. He not only endorsed a repatriation holiday, but said we should permanently allow corporations to repatriate money at a lower tax rate:

It’s a good idea. We ought to have it every day. Instead of having repatriation every seven years, let’s have it every single day by going to a different system.

Of course, permanently allowing corporations to repatriate money at a lower rate would create all sorts of perverse incentives to first send money offshore for purely tax purposes and then bring it back later. But Ryan may also have been endorsing the move to what’s known as a territorial tax system. Speaker John Boehner (R-OH) has called for such a system, which, as Citizens for Tax Justice noted, would promote the permanent offshoring of U.S. jobs and funds.

Already, the prospect of repeated tax holidays has encouraged corporations to move assets offshore. According to research done at Northwestern University, following the 2004 tax holiday, corporations moved more money offshore in anticipation of another tax holiday, and “by the end of 2006 the total ‘permanently’ reinvested abroad had exceeded the 2004 peak.” The Joint Economic Committee estimated that a repatriation holiday would cost the U.S. nearly $80 billion over 10 years.

Iriestx's picture

You're a sucker, being played by the big boys that wholly own and control both parties.  Choice is an illusion.

R vs D is the biggest joke in the world, and the idiots that buy into that false dichotomy have to be dumb as shit.


Rodent Freikorps's picture

That is why I'm voting the Hawt Party from now on.

lizzy36's picture

Obama may win in 2012. NOT because of the job he has done.

Winning because the other team fields a crappy candidate can't be declared a victory.

Full disclosure, I hate the game. Which mean i am neither a democrat or a republican.

Although i will consider purchasing a palin/god 2012 bumper sticker

alien-IQ's picture

I would love to see Sara Palin run with Ron Jeremy as her VP. Not for any political reasons mind you, just for the sheer comedic joy of it.

Rodent Freikorps's picture

I have had a bad experience voting for the lesser evil. I've voted that way all my life, and things only suck more.

If the Rs put forth a female candidate, I'll vote for her.

Fuck you if you disagree. I could give a shit what you think.

alien-IQ's picture

your post is hilarious on so many levels.

Rodent Freikorps's picture

How's hope and change working out for you?

I'm voting for hot females from now on.

Couldn't be worse.

Antarctico's picture

You go to town on that. At this point in the game, it really doesn't matter one whit who gets elected.  Domestically, expansion of the police state will continue, internationally Neo-Con foreign policy at the point of a gun will continue, and every where you choose to look, riches will continued to be extracted from the poor and middle class and funnled up to the criminals at the top of our world pyramid of suck.  Fuck it -- if Sarah Palin or Michele Bachmann gets elected president, we can knock out that glass ceiling, plus the comedy will be awesome and unending.  If the world has to burn, I want to at least get a few laughs out of it.

Rodent Freikorps's picture

Historically, the guns have been used by the useful idiots of the Left.

That is why I have come to hate all who push social Liberalism all the way to the point of self-destruction.

The young will kill the old because they have been well programmed by the social liberals who run the educational system, Hollywood, and most media.

They will win and bring the holocaust of communism.

It makes you want to cry.

I'm not very fond of American Catholics at the moment either. Social Liberals destroy their society the way cancer kill the body.

Vic Vinegar's picture

holocaust of communism...I like the way you turn a phrase.

Other than that you are far too crabby today.  Turn that frown upside down :-)

Rodent Freikorps's picture

I'm doing rum today to honor WheresTheRum, bitch goddess.

Rum makes me morose.

Antarctico's picture

I am personally past the whole left vs. right thing as both sides have been so fully corrupted that all distinctions between them are meaningless -- both sides get their treasure and take their marching orders from the same globalist kleptocrats.  Regarding communism vs. fascism, these terms are ultimately indistinguishable from each other as, trappings and jingoisms aside, when fully expressed both ideologies devolve into their base "ism" which is totalitarianism.  As for crying, I'm all cried out, now I bounce between being sick to my stomach and livid anger.  Just for fun, whenever I visit our National Mall, I like to drop by the Jefferson Memorial, stare at his statue, read the words on the interior walls, and feel really, really awful about how things have worked out.  OK I confess, these little visits to mourn do get my eyes on the shiny side.

Vic Vinegar's picture

both sides get their treasure and take their marching orders from the same globalist kleptocrats. ...yes.

Look at the world as being like a Klondike bar: a thin layer of chocolate (representing fascism and a move to global gov't) that covers a larger vanilla portion (representing the larger portion of people who get to live this socialism).

Antarctico's picture

Dude, don't go trying to ruin Klondike bars for me! ;)

Shell Game's picture

Americans haven't paid attention to history for quite some time.  Idealists always forget the unintended consequences of idealism and repeat old mistakes.   Fuck 'em and the holocaust they'll ride in on.

I found a little inspiration today:

I wouldn't mind getting lost in those Smoky Mts...


Shell Game's picture

'Hope I die before I get old..'

Great clip.

brew's picture

We get the government we deserve. Don’t get mad at the politicians! It’s our fault. We elected them. We should get rid of this phony two-party “democracy.” 

The two-party system made simple:

Two worthless dipshits are on the ballot.

If you vote for one of them, a worthless dipshit will win.

If you don’t vote, a worthless dipshit will win.

It’s a pretty unappealing sales pitch. How did it last 200 years?

NotApplicable's picture

Because one of the dipshits appears scarier than the other in regards to the [distracting polarizing social issue of the moment], making this THE MOST IMPORTANT ELECTION EVER!!!1!!11

NotApplicable's picture

So, things will suck less if you vote for the more evil candidate?

Actually, I agree, as it brings more of the lies out into the open. It was the one and only reason I preferred the Manchurian Obama to the Manchurian McCain, as it shut-up the "Anybody But Bush" crowd for a while, as they feasted upon "hope and change" flavored crow.

Not that it matter's though, thanks to cognitive dissonance. Now they believe they actually asked for the crow.

brew's picture

two party system has divided this country long enough.  direct democracy is much needed.  kick em all out...

Nathan Muir's picture

No, No, No!  We are a Republic for a reason - "direct democracies" ALWAYS morph into tyrannical states over time.  The sheeple are ALWAYS tricked into voting away their freedom/rights/liberty. 

I am for kicking them all out, but only if we follow that with a harsh punishment like public hangings.  Punishment for ignoring the constitution.  That precendent would set things straight for a couple centuries, then repeat.

equity_momo's picture

Youve made Schumer look smart today.

SRV - ES339's picture

Never work... I hear Ron likes to read!