Would a tax exemption on cash earned by US corporations from overseas operations create US jobs, or just richer corporate jet setters?

If you read the whole article, the last time such funds were allowed to be brought into the US under a tax holiday, it had really no effect on the economy. It did not create jobs.

Glad to see you’re back to politics.

In fact, @zenvelo, it seems like jobs were lost.

What I want to know is why companies want to repatriate these dollars?

Because they can then use the cash to pay dividends to shareholders or pay off debt. When you declare a special dividend that really has no effect on the operating capital of the company, it boosts share value and keeps the owners (and employees who own stock) happy.

Most likely, this is the only time I would ever agree with Andy Stern.

“Having it overseas doesn’t help. And we have to do something.”

I also don’t see the problem with dividends. Hell, dividends are double taxed, why would that be a problem for you guys? Also, if you are toying with the idea of building facilities overseas, it would seem that using the off-shore money would be an incentive, instead of bring it here and then investing overseas.

Frankly unless we believe that they will bring the money home eventually regardless of the higher tax rate, I see no downside. If the alternative is to let the money stay overseas, it would seem to be a net loser.

I would think that such a tax exemption would cause America to loose jobs to outsourcing rather than creating them. In fact, I believe that America needs to take immediate action to stop the hemorrhage of American jobs by making it less advantageous to outsource to “low cost centers” located elsewhere and make it more economically advantageous to create American jobs rather than create jobs overseas.

I can see this working for certain manufacturing industries. John Deere, for example. They would highly benefit by not being double-taxed on bringing revenue from their sales in China back to the US (though I highly doubt they are now). They could then re-invest that money into their US-based manufacturing operations. But for the most part, companies that aren’t already investing in US-based manufacturing don’t need any more incentive not to chip in.

Just an addendum.

If by “overseas operations” you are talking about the sale of goods and services exported from America (made in America by Americans), then in this particular instance it would be a net benefit to the American worker. However, I am interpreting the term “overseas operations” as outsourcing entire divisions and then giving a tax break to American corporations for the profit they make from those divisions.

@zenvelo Thanks for bring that out.

@janbb I still have a few {NSFW} things on my mind, but I felt it was time again for something truly filthy and debased, politics.

@wundayatta Jobs indeed were lost. And as to the why question, @zenvelo supplied the primary answer.

@Jaxk Have you ever met a tax cut for the wealthy that you didn’t love at first sight? Why don’t we just eliminate all taxes for anyone with income over $1,000,000 a year and for all corporations with over 500 employees. Let’s let the little guys pay for everything. Then we can quit debating tax policy and get on with the work of building a nice banana republic.

@YoBob Seems that way to me too. And no, I am talking about goods manufactured offshore. Profits earned on exports don’t need repatriation. They already show on the US firms books here.

@Mamradpivo John Deere now manufactures in China. To do so, an American company must sign cross-licensing agreements with their Chinese counterpart. If they pulled out, China would just use government funds to prop up a local competitor and drive John Deere into bankruptcy.

@ETpro

Very good analysis and obviously well thought out. But let’s see if there are any flaws in your analysis or even if there is any analysis. According to your article we have $trillion sitting off-shore (maybe more). We know for sure that as long as it sits off-shore, we will not collect any US taxes on it. We also know for sure, that as long as it sits off-shore, it can not be invested in the US to create jobs (or anything else). Basically as long as it is off-shore, it does nothing to help the US economy nor government revenues. The article proposed a 5.25% tax rate which would generate about $52 billion in tax revenue if they repatriate that money. But we would rather leave it off-shore, than to do anything that might profit someone no matter how much or little. So far, it sounds like a good ‘cut off your nose to spite your face’ kind of strategy. Not a strategy that I would choose but then I’m not a liberal and the subtleties of this strategy sometimes elude me. So let’s look a little deeper.

Some are afraid that the money might be used to pay dividends rather than creating jobs. OK, that just might happen. If it does, we still get the $52 billion in tax revenue but we also get tax revenue from those dividends. Everyone that gets a dividend check has to pay tax on it. If we assume they are all little guys in low tax brackets we probably won’t get more than 10–15% on it. Still that another $100—$150 billion in tax revenue. Of course it might just go to the rich guys (heaven forbid), that would put it closer to the 35% tax bracket or about $350 billion in tax revenue. So I’m not sure how to read this as a loser. Some of you liberals will have to help me out on this. How do you read an increase of $200—$400 billion in tax revenue as a net loser?

Of course this might actually be used to buyback thier stock. Now that would appear to be a real disaster. Hell, they buy back stock and increase the share value, they make out and we only got the original $52 billion in tax money. But that’s not really all we got. as the share value goes up, it creates a thing called ‘Capital Gains’. Everyone that owns that stock has now incurred capital gains, which by-the-way is taxed at 15%. I should mention that the scam above also would increase share value thus creating capital gains as well. The amount of capital gains tax in this scenario is difficult to estimate but suffice it to say it could be significantly more or less than that mentioned above. Again I need some liberal help to see the downside here.

Now let’s look at jobs. If you have a $trillion sitting off-shore and you want to invest in plant or new business, you can invest it overseas and use the entire $trillion to do so. Or you can repatriate that money pay the additional tax (probably 15–20%) and invest what’s left (maybe $800 billion). It would seem the $200 billion is quite an incentive to build or create jobs overseas. If we provide the tax incentive however it would change that equation so that there is only a $52 billion difference making the US seem a bit more attractive. In either case, I don’t see why anyone would repatriate that money (and pay the extra tax) to invest it overseas. Again, I need the help of some of you liberals to see how leaving the money off-shore helps us in any way.

@Jaxk It doesn’t. Neither does rewarding evasive behavior by granting a tax holiday. The argument put forth by those wanting the holiday is that it will help create jobs, but the last time this was tried it failed to generate any job growth. So why should we grant a tax holiday?

Perhaps we should tax US revenues against the cash generated overseas. Then the firms could move the cash to whereever they need it, since it’s already taxed.

@Jaxk I was actually more concerned with Herman Cain’s proposal; to eiminate any tax on repatriated profits. You might be surprised to learn that I actually favor elimination of ALL corporate income taxes. They just get passed on to consumers in the cost of goods anyway. But to do that, we would need to close all the individual income tax loopholes, close the capital gains tax loopholes, and probably set up a progressive tax structure that taxes individual earnings at a sliding rate no matter how they are earned. Investors will still invest. It’s a whole lot easier to earn a boatload of money on investments than on a 9–5 (0r 8 ot 20PM) jpn om corporate management.

@ETpro

I have no problem closing loopholes but it would require some definition of what we consider loopholes. Things like eliminating the home mortgage deduction would create another massive wave of foreclosures. But if we look at all the tax holes and subsidies for ethanol, oil, windmills, electric cars, and so forth, we might actually have something. The corporate tax rate doesn’t really need to go to zero, it only needs to be competitive. If it was competitive the off-shore money would no longer be an issue. And if the tax rate were competitive it would eliminate at least that part of the international competitive disadvantage we currently have. If you’re looking at an overseas operation as opposed to domestic, you’d still have the wage and regulation issue but at least it wouldn’t be compounded by the tax disadvantage as well.

On the capital gains we have a basic disagreement. Correct me if I’m wrong on this but your argument seems to assume that behavior is not affected by the tax code. That is the capital gains rate will not affect the level of investment. I have a fundamental disagreement here. Much of our life is affected by the tax code. Whether to buy a house, whether to expand an is existing home. Whether to invest in stock or put your money in savings or maybe tax free bonds. The tax rate affects everything. And if you tax capital gains at a higher rate, you get less capital investment.

Overall, I would just like to see the US competitive on the world stage. We don’t need a tax advantage since I think we already have an advantage in ingenuity and market size. If we can get rid of the imbalance in tax and regulation, we would see a shift in bringing jobs back to America. IMHO

@zenvelo

The reason the money stay off-shore is due to the tax penalty. Increasing that penalty won’t bring the money home but rather push it further off-shore. And I have no idea how you would make something like you suggest, work.

@Jaxk Closing most of the tax loopholes might cost some high-end taxpayers more in taxes, but it would make filing those taxes far simpler and let us concentrate on producing things of value rather than structuring our businesses or investment portfolios to minimize our tax burden. The net result might be more money in our pockets at the end of the day.

It was very late last night and I rushed through the answer. I would certainly leave the home mortgage deduction in place on mortgage interest for the first $500,000 of mortgage debt. I’d let it go for the real McMansions. I’d allow deduction of student loan interest. Also, any change that would have heavy impact on people should phase in over time so as to allow them to adjust their investments and business strategies. We wouldn’t want a repeat of the the yacht tax fiasco. Tax policy should never change in lurching fashion short of a national emergency like we faced after Pearl Harbor when the fate of the nation, and indeed the fate of the civilized world, hung in the balance. The possibility we might face such a threat again, by the way, is why I think Grover Norquist’s Never raise any tax pledge is an abhorrent, greed-driven piece of self-defeating insanity.

On repatriation, I am ambivalent. If I had my way and we eliminated the corporate income tax, it would instantly become a non-issue. But with US companies currently sitting on roughly $2 trillion in cash reserves, not investing to add capacity and create jobs, I think it is a bogus argument to claim that if only we could bring that cash back onshore, prosperity would break out like a glorious sunrise.

On capital gains, I am sure behavior is affected by tax code. If we really wanted a flurry of investment, we could pay investors for their capital gains profits. That would be great for billionaires and horrible for America. I am willing to wager that even if they were taxed at the same rate as workers, investors would still invest to make profits without having to work a full workday to make them. Looking at the rates from 1988 to 2011 our most robust growth occurred durring the years when the rates were highest. If we keep starving revenue, and slashing education, healthcare, police and fire protection, infrastructure repair and creations, assistance to seniors and the infirm to pay for it we will build a society with no middle class and there will never be any incentive to invest here except for the Banksters on Wall Street who have the resources to manipulate the futures market, buying futures on goods they never plan to take deliver of; driving up the price then dumping the futures in a classic pump and dump fashion. Oh and buying lucrative derivatives that add no value to the economy, only line the pockets of the fat cats. Why invest in production with it’s modest return when you can play pump and dump and make 100% per year or more?

For those billionaires who would leave if asked to pay their fair share, I say good riddance. They can enjoy the welcoming sands of Dubai and they might want to be careful they don’t fall afoul of Sharia law. We’ll make new billionaires that care enough about the country that made them wealthy to help keep it running smoothly for their children’s sake.

@ETpro

I think we are in complete agreement on the closing loopholes part. We may disagree on the mortgage interest simply because I don’t see enough revenue to make it an issue and it comes across as simply a way to punish the rich rather than anything productive. If you get a deduction, I should get one as well (and vice versa). The student interest expense is another nit. Hell you’d have to itemize to use it anyway.

The tax pledge is just plain stupid on so many levels I couldn’t possibly list them here. I may not vote against someone that signed it, but it certainly won’t be a favorable factor in my decision. I know we’ve argued many times about the Clinton tax hikes and the Bush tax cuts. The truth is a tax hike during times of high growth typically doesn’t hurt. I can’t say I liked the tax hikes in the 90s, but I will say they didn’t slow me down. I see the Bush tax cuts as the other end of the same scale. Taxes go up and down and should be determined by ‘conditions on the ground’.

Capital gains however, I think we still have disagreement. The hedge funds, derivatives trading futures trading, can all be handled differently. We don’t need to raise the capital gains rate to solve that. The problem is that you can control large trades with relatively little money. That allows the big hedge funds to actually manipulate the market prices. The capital gains rate won’t change that. But a change in the amount of upfront money required would have a major impact on reducing that manipulation. So instead of investing $50,000 to control a $million in futures, it may take $200,00 to do so. It massively changes the risk reward ratio and the influence of hedge funds.

I know there is a general distaste for the rich. I’m not sure there is any validity to it. If you look across the country, the savings rate has gone up. Everybody is affected by the recession and if you get a few extra bucks, you save them. So why such venom at the rich for operating exactly the same way. Are they less patriotic because they choose to choose to save in an unstable economy? Corporations are no different. If the future looks dim, you don’t spend everything today. And if you have money sitting overseas, why would you bring it here with the only incentive of paying more taxes on it. When I turned 59½ I could have pulled all my money out of my 401K and paid taxes (at the top rate) on it. I chose instead to pull it out in smaller pieces and keep my tax bracket low. Am I a bad person for managing my finances that way or is it simply common sense. If I were rich would that change so that managing my finances in the same way suddenly becomes unfair? Suddenly I’m unwilling to pay my fair share? We’ve created a system where managing your fiances around the tax code is a necessity. If you don’t do it, you’re an idiot. If you do, you’re some kind of slime that’s unwilling to pay thier fair share. If we don’t like the way the tax code is used, maybe we should simplify the code, rather than demonizing those that use it intelligently. And if the tax code causes people to look elsewhere in the world, maybe the problem is with the code rather than the people that do so. Just a thought.

@Jaxk I’ll stand my ground on capital gains, based on the factors past rate changes have demonstrated. That’s one area that would produce serious revenue to get us out of the debt mess we are in. And I’m convinced that if you got taxed just as much for working as investing, those who don’t need to work to live would not suddenly stop investing and go get a 9–5 job. I completely agree on controlling market manipulation by adjusting margin allowances.

My suggestion on the mortgage tax deduction cap is not an attack on the rich. A guy in a house trailer and a guy in a $100 million dollar mansion would both get taxed at exactly the same rate on the first $500,000 of the purchase price. I’d just cap the deduction there. Maybe that would encourage a few less people to wreak havoc on the environment by living in 20,000 sq. ft. McMansions. If not, at least it would raise some revenues to deal with the damage they do. Clearly the person living in a 100 acre estate i Malibu draws more from the public than the guy in a trailer up in Topanga Canyon.

I have no quarrel with individuals or businesses saving more. They should. My point was not that they are evil or unpatriotic for doing that, but that we are idiots to believe Republican claims that giving big corporations far more cash will stimulate jobs. That only works in a supply side crisis. We’ve never really had a supply side crisis. We are definitely in a Demand Side crisis now, and taking money away from the middle class and poor consumers to give it to billionaires and corporations is NOT going to solve that, it is going to make it worse.

I don’t know what I said to lead you to believe I hate the rich or pour out vitriol on them. There are many billionaires in the US and around the world whom I greatly admire. My disdain is reserved for those who use their money to fund think tanks and lobbying efforts with the aim of lowering taxes for themselves to near zero, allowing themselves to shape government so they win every bet or the little guys pay to cover their losses, trying to gut social services so they can get even more. That’s unbridled greed, and I despise it when I see it in a billionaire or a pauper.

The wealthiest 1% in America now own over 40% of all the nation’s wealth. If that’s not enough, how much is?

@ETpro

It sounds like you’re talking about ‘Day Traders’ and that ilk. We already have long and short term capital gains rates. If you trading for a living the gains would typically be short term and as such taxed at the normal income rate. I’m not sure what you’re rate increase would accomplish other than deterring real capital investment.

Your McMansions are already taxed more in both property tax an higher income tax rates. As I’ve said I generally against special tax treatment for those we don’t like. You never know who we’ll dislike next.

I never understand the idea that if we don’t take more then we’re giving someone something. And you even go further and say that if we don’t take more from them we are somehow taking it away from the poor. Rather nonsensical to me.

You think companies will invest in your power grid (supply side) but they won’t invest in their business (supply side), seems rather fickle to me. You don’t believe companies will invest to cut costs or create new products and would rather send everyone a check under the guise of stimulus. Of course we know that everyone is saving any extra money they get but you only complain if the rich do it.

We have created an atmosphere where everything is regulated. If you don’t have a voice in Washington you will be steam rolled. Not just in burdensome regulation but in legal action as well . I don’t blame the companies or even the lobbyists for this. I blame the system that created them. If we want to get rid of the lobbyists/special interests, we need to simply the tax code and regulation. Every time we add another layer to those things we add an army of lawyers, accountants, and lobbyists to the roles. And they add nothing to the economy. Every Time you try to manipulate the codes to say ‘these people can do this and those people can do that’ you create a system where everyone tries to show they are in the group most advantageous to them. If you create one group, everyone plays by the same rules, you eliminate the need to play games and the need for lawyers, accountants and lobbyists. Simplify, simplify.

@Jaxk That whole paragraph is nonsense to me. I’m sorry, I can’t parse those words and grasp what you are trying to say. The fact is that the tax system over the past 30 years has been slanted by Republicans to take form the poor and middle class, and give to the rich. Here.s the result. http://www.theroadgoeson.com/wp-content/uploads/2011/02/look-at-the-wealth-gap-grow.jpg.gif

We;re slowly moving toward being a banaba republic. I assume you think you will be one of the oligarchs in it and thus you look for every tinmy inconsistency to deny a sea change is underway. But no matter how many grains of sand you stack on an anthill, it isn;t bigger than Mount Everest. The data is beyond clear. There is class warfare in America and the poor did not fire the first shot. They can’t even afford amunition..

@ETpro

Likewise I’m unable to give much credit to your link. I have no idea what he measuring. If I did, maybe I could respond. But I do have to comment that this is a blog from a Programmer and (wannabe) Permaculturist. His words not mine. Maybe that’s why there’s no detail behind that graph. It is also noteworthy that he provides some curious conspiracy theories. I’m not saying he’s not credible but not the place I’d go for hard facts. Just a sample of them below.

“A plan to attack American cities to justify war with Cuba was approved by the Joint Chiefs of Staff in 1962.”

“In 1977 it was revealed that random American citizens were abducted & tortured for research by the CIA.”

“The FBI admits to infiltrating & disrupting peaceful political groups in the United States.”