When corporations offer to pay taxes, consult your cardiologist: You need to take that with several grains of salt. Nonetheless, that's what some of America's biggest companies are doing.
In order to "help" with the United States' continuing financial woes, megafirms like Apple, Google, Microsoft, and others are proposing to repatriate foreign profits. Once this money--potentially hundreds of billions of dollars--is brought "home," it will be subject to taxes, providing an immediate infusion to a cash-strapped treasury. The catch, though, is that the companies are requesting a hefty tax break: Instead of paying the regular tax of 35% on these foreign profits, corporations want a one-time, one-year tax-cut--to just over 5%.
Corporate chieftains argue that this proposal is a win-win: Companies pay less tax than they would normally have to pay. The government gets badly needed funds to reduce deficits or (heaven forfend!) provide services to those in need. And businesses would increase their ability to stimulate the economy by buying goods and services and/or hiring new employees. Critics respond that similar amnesties in the past have provided less of an economic jolt than expected.
On the surface, the proposal has some merit. Apple, for example, has some $12 billion sitting in foreign banks. While it would be nice to see them fork over $4.2 billion in taxes, that isn't really an immediate option. The choice is between Apple paying a little over $600 million (5.25%) or just keeping the money overseas, in which case the government gets nothing now. The proposal looks even more attractive if--as proponents suggest would happen--Apple uses a large portion of the remaining $11.4 billion to spur investment or hiring.
Politically, the idea is distasteful: Humongous corporations receiving multi-billion dollar tax breaks looks bad when average Americans are struggling to get by. But we can swallow hard and accept the idea politically. On the other hand, we question the economics.
The potential upside of this proposal is that companies would use the money they bring back from overseas in a manner productive both to themselves and to the general economy--by buying stuff and hiring people. There are, however, no guarantees that corporations would actually do this: They could, instead, simply park the money in American banks (which wouldn't be the worst outcome as the money could then be lent out to others) or, worse, reward shareholders with hefty dividends.
Because here's the thing: The very fact that the money is now just sitting around overseas doing nothing suggests that these corporations don't really need the money; if they did, they presumably would bring the bucks back home regardless of the tax implications. Rational economic behavior suggests that Apple and Google and Microsoft and the like consider sequestering money overseas--presumably earning interest--a more productive use of capital than bringing it back home. A tax break, therefore, would seem simply to be an unearned reward for acquiring capital overseas. It also sends a dangerous message to multinational conglomerates: If you wait long enough, you won't have to pay proper taxes on your earnings.
On the other hand, the government could use tax policy to generate revenue and stimulate the economy. And while the absolute number of dollars might be smaller, the results would be more likely to generate economic growth.
Millions of Americans have 401k's or similar retirement accounts. These accounts, often tied to the stock market, have taken a battering over the last few years. Account holders, though, have been largely unable to pull their money out of these diminishing funds. That is because, as retirement accounts, these funds are supposed to be off limits until the holders reach retirement age. If someone does withdraw funds early, they face massive tax penalties.
So. . . why not substantially reduce these penalties? People struggling to pay bills or buy clothes or put food on the table would presumably welcome the chance to tap into these substantial (even if diminished) pots of cash. They would pay a small amount of tax on their withdrawals, thus, as in the corporate scenario, supplying important government revenue. Furthermore, these folks are highly unlikely simply to pull out the money and stick it under the mattress: They will use it to, y'know, buy stuff, thus stimulating demand and, perhaps, generating a need for companies to start hiring again.
Those who object that this undercuts the purpose of the 401k--to provide workers with a comfortable retirement--need to look at the state of the funds themselves: Even before the recession, it was unclear that a typical worker's 401k truly would have provided a secure retirement. Since the crash, the accounts have shrunk and are thus even less likely to provide a soft cushion for retirement.
So if the government decides to provide Google with a nice tax holiday, fine. The actual effect on the American economy will probably be negligible at worst. But if economic stimulus and popular support are the goal, the best place to start would be with the little guy.
Solipsistography"
Companies Push for Tax Break on Foreign Cash"
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Answers to yesterday's Shakespearean Insult Quiz:
The following insults were Solipsisms: Pallet jacker; Bobbin; Blue-footed booby; Randy savage; Thrice-mullioned otter (we were particularly pleased with that one); and, Spastic colon
