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Big Boys Duke It Out
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Faye Dunaway had a great line in the movie Chinatown. She said:
I don’t get tough. My lawyers do.
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Some of the biggest titans of industry are currently in brawl over a ton of money. As is usual in America, when powerful forces get into a fight they turn to their lawyers (and lobbyists) to do the actual punching. While this may appear to be civil, it’s not. There’s too much at stake.
The issue is the $1 trillion of earnings that corporate America has piled up outside of our borders. This money represents the profits from foreign activities that have not been repatriated back home. This loot has already been taxed in the foreign jurisdiction where the profits have been made. The average tax on this pile of money is only 12%. To bring the money home would trigger an additional tax liability to the IRS equal to ~23% (35% marginal tax minus 12%, foreign taxes paid).
What’s at stake is $250 billion. With that much money on the table the big hitters get the best lawyers and lobbyists to “Get tough”.
On one side of this slug fest are 50 big companies including Apple, Cisco Systems, Devon Energy, Google, Microsoft, Oracle, and Pfizer. They are jointly represented by a slick lobbying outfit called WinAmerica. (link) This is the mission statement of WinA:
Congress should pass legislation to offer an immediate reduction of taxation on income earned overseas by innovative American businesses to allow that money to be brought home and invested in the United States.
Gee! That sounds smart doesn’t it? Some details from WinAmerica:
Currently, there is over $1 trillion earned by American businesses trapped overseas. An essential first step would be to allow these worldwide American businesses the freedom to bring up to $1 trillion in global earnings home to invest it now into our still fragile economy.
Let’s be very clear on this. GOOG/AAPL/MSFT/GE etc. are pushing for a tax holiday. They want to bring all of their foreign profits back home and pay no US tax. This has been done before and there is very little evidence that those companies who benefited in the past actually invested in the US and created jobs. They paid dividends and reduced debt with most of the money.
On the other side of the tax holiday being pushed by WinAmerica are Kimberly-Clark, Zimmer, United Technologies and Caterpillar. Corporate officers of these big hitters testified on this matter to Congress. This group is arguing against a holiday. From a Newsweek report:
"The four chief financial officers testifying at the hearing said they oppose a one-time repatriation holiday that would allow companies to bring back overseas profits at a reduced rate."
So what’s this really about? Why are the titans of American industry spending big bucks and beating each other up? Enlightened self-interest is the answer.
Apple, Cisco Systems, Devon Energy, Google, Microsoft, Oracle, and Pfizer had a total of $164 billion in accumulated undistributed foreign profits. They want that money in their pockets and they don’t want to pay a penny in taxes. This group is prepared to make concessions regarding future tax benefits (deductions economically related to foreign earnings) in exchange for the cash.
Those apposed to a one-time holiday don’t have the big stash of foreign cash, so a holiday does them no good. In some cases a holiday would create a competitive disadvantage. This group is more interested in maintaining the existing tax structure as it is. They want to keep credits for US located activities of R&D, workforce training, and manufacturing.
So the pissing match between the titans (and their lawyers) is about money. It’s about greed and tax avoidance. Surprised?
I think the scale is going to tip in favor of the nice folks at WinAmerica. This is the argument they are selling:
The likelihood of another stimulus, additional tax cuts, or action by the Federal Reserve is low, and unemployment is still too high.
Providing American businesses with incentives to invest at home is a common sense solution that will immediately inject up to $1 trillion into our economy and provide businesses with the certainty they need to help get Americans back to work.
The first part of this is true. There is no stimulus coming from the monetary or fiscal side. The second part is bullshit. There is a ¼ Trillion of tax revenue at stake. That will be traded for a promise of some jobs in the US. There will be some jobs created as a result. But the cost of a $60,000 job will be $500,000 in the final analysis.
Either way this plays out Corporate America will win, the average American will be the loser.
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It's got to be carrot AND stick policy:
Carrot: you repatriate cash back to the States before 2012 and reinvest at least 1/2 of it doemstically - ok, we'll cut 35% rate to 25 or 20%.
Stick: Otherwise every penny remaining abroad above $1B per corporation will be marked, indexed for inflation, and taxed at 50% if brought back within the next 100 years. If 2 companies merge - the money also has to be repatriated and will be taxed @50% in order toi make mergers that result in layoffs lkess attractive.
If there's only carrot, after carrot, after carrot - no wonder GOOG, PFE, CSCO and MSFT think they own The Congress and the Treaury! (they're wrong, of course. Goldman and JP Morgan own the Treasury)
Well, we really wanted to bring the money home but the bad IRS would'nt let us.
So in the meanwhile we thought it prudent to invest it in Sovereign Debt of Greece.
All bonusses were already paid because ... ya know.. money is fungible.
All they want to do is bring the money home. Is that too much to ask? My god, give 'em a chance! They just want to use the money saved to give to their shareholders. Is that too much to ask? Can't you find it in your heart to at least let them do that? My god, what's the hold up?! They just want to...
d'après http://www.youtube.com/watch?v=OKJZbUsXHGI&feature=related
Consumption tax would solve so many problems. Instead of trying to hide income it would entice us to declare and embrace income. In order to afford the consumption tax people would take jobs they ordinarily would not take. And since keeping 100% of your income would make justification for lower wages an attractive option, small businesses would then have a plethora of labor options which are currently absent.
Small farms are sorely in need of better labor options ABOVE THE TABLE. Instead we are pushed under the table. A double negative.
Of course, ADM, Monsanto, the New Jersey Rothschild et al will have it NO OTHER WAY. Good night America. Fun while it lasted.
The problm is that there are already consumption taxes (sales taxes, property taxes, interest paid to banks) on everything. How high should they go to sarisfy the Federal government? And, for the government to depend on a consumption tax they would need to depend on consumption continuing to be the lagest portion of the economy. Us it 70% now?
Small farms are sorely in need of better labor options ABOVE THE TABLE. Instead we are pushed under the table. A double negative.
was wonderin today if maybe we're just workin on the soil's timetable and just don't realize it yet. keep diggin dirtt, there's gold in them there hills!
Um, aren't aapl, csco, goog, etc. already sitting on massive piles of cash? If it were really their intention to use accumulated profits to help Joe Lunchbox, it seems like they would have already done so. More likely, any repatriated cash will go into stock buybacks, corporate takeovers, and executive bonuses.
stock prices are down. any illusion that they weren't/aren't an economically sensitive industry was shattered when the bubble burst way back on a day called "9/11." needless to say the Nasdaq has never recovered and will never until our Government House is in order. It took not just WWII but what happened after the war for the DJIA to recover from what transpried in the Great Depression. Needless to say as the market showed today there are limits to innovation vis a via growth prospects. I would argue annihilating intelligent and inventive minds to be highly counter-productive to the enterprise as well. the fact of the matter is one of the great attractions to the ZH community for me is as a raw fulcrum of ideas and imagination. I must say it's nothing like the original days of course--and i am highly disappointed we can no longer author as we used to. I must say i feel not just relegated but silenced as well.
That cash was earned through business conducted overseas, so it would have to be brought back to the U.S. (and thus taxed) before it could be used to hire workers here. The only thing they do with it overseas is make acquisitions of foreign companies or hire workers in foreign markets (and we wonder why jobs keep going abroad).
You are correct though that most evidence suggests that when a tax holiday occurs and repatriation is allowed, it typically goes to dividends, buybacks, and debt reduction (the latter not really an issue for most tech companies).
Yeah 'stimulus' . . .the only the stimulus the little guy gets will be a cattle prod.
Has it ever been different?
My money's on Faye Dunaway in the third round by knockout.
Regarding the article, once again Bruce delivers the knockout punch.
Here is another surprise. This is only the beginning. As economic conditions tighten, the corporate cry babies will cry even louder. "Help us, we've fallen down and we can't get back up."
There is no better example of the slave mentality and conditioning than the master telling the slaves that they will need to give up one of their three square meals a day so that the master can eat even better. Or the slaves may be cut back to one meal.
Of course the slaves go along with it because they think they are property and not sovereign beings. It's not like they have any choice in the matter......right?
shes my daughter...shes my sister...shes my daughter...oh forget it.
Classic line from a classic movie.
Exactly right CD. Unfortunately, these cry-babies are very well informed and well funded. They are well aware that infinite growth on a finite planet is impossible. Disconnect and be self-sufficient within your own community. At the very minimum, do not be an enabler. These big dogs try to sell us crap all the time. The customer is indeed always right, most blind sheeple forget that.
Faye's character got shot in the head at the end of the movie: neither her nor her lawyers were tough enougn ...
nor could her Daddy ...
http://www.youtube.com/watch?v=IYMWkRrC7UY
prophetic flick that was, eh?
I quite liked Taibbi's comment:
http://www.rollingstone.com/politics/blogs/taibblog/evil-corporate-tax-holiday-gains-bipartisan-support-20110726
LOL! Matt's work is always a good read.
I sure hope he doesn't own a hot tub.
Corporate Welfare at its finest.........thanks for the article.........
Ok, I'll say the obvious. That money is stuck overseas. Brink it home. Pay it out. Let the market allocate it!
Who cares if the exact companies who repatriate the cash are the ones who do the hiring???
If these companies had opportunities to invest the excess cash with attractive ROE's, they'd already be doing it. A tax holiday isn't going to help.
But...what it will do is get the cash into the hands of investors who allocate it to more productive areas (e.g. faster growing companies who are itching to build out capacity and hire more people.).
Let's get the money off the balance sheets of the slow growth companies and into the hands of the companies who will create the jobs.
The important thing is to just get it back and let the market do what it does.