This is just silly–but, unfortunately, not entirely surprising. Chuck Schumer has grabbed on to the idiotic idea of rewarding corporate America for tax dodging and stashing billions of dollars overseas. And the senior Senator is doing a huge flip-flop–one that is bad for the country.
We’re talking about one of the worst ideas ever thought up–one that was already tried and failed miserably: giving corporations a tax holiday in return for those corporations doing a big favor and bringing back tens of billions of dollars sitting in off-shore accounts. Citizens for Tax Justice has the upshot:
In 2004, Senator Charles (Chuck) Schumer of New York voted in favor of the so-called American Jobs Creation Act, a bill full of so many tax breaks for special interests that one observer called it a “bacchanalia of Caligulan proportions.” The bill, which many Democrats and Republicans supported, prompted one business lobbyist to confess to a reporter that the policy process had “risen to a new level of sleaze.” One of the most outrageous breaks in the bill was an amnesty for corporate tax dodgers, a measure called a “repatriation holiday” by its supporters.
A second “repatriation holiday” was proposed as “economic stimulus” in 2009, but Senator Schumer, like most Senators, voted against it because of data summarized by the Congressional Research Service showing that the 2004 measure did not create jobs. In fact, the research showed that the benefits went to enrich shareholders rather than to job creation.
Now Senator Schumer has switched positions again and is supporting a second repatriation holiday.
Indeed, when I wrote about this foolish idea recently, I happened to run into Rep. George Miller recently and he underscored what CRS had found: he asked CEOs in Silicon Valley what they did with the repatriated profits and they admitted to him that almost none of it went to job creation.
The CTJ study shows how dumb this idea is, if the concept is “bring back the dollars so we can have jobs”:
According to the Internal Revenue Service, 843 of the roughly 9,700 eligible corporations took advantage of the deduction. This sub-set of eligible corporations repatriated $312 billion in qualified earnings and created total deductions of $265 billion.
And:
Empirical analyses of the stimulative effects of the repatriation provisions in the American Jobs Creation Act also suggest a limited stimulative impact from the provisions. They conclude that much of the repatriated earnings were used for cash-flow purposes and little evidence exists that new investment was spurred.[emphasis added]
I’m shocked: these corporate CEOs did not use the money for investment or new jobs? Hmmmm, you think “cash-flow purposes” might have included their multi-million paychecks and pensions? Nah…these guys aren’t hogs, are they?
CTJ again shows how dumb this idea is:
Corporations will likely shift even more profits offshore in the long-run, because corporate leaders will think they can simply wait for Congress to enact the next repatriation holiday allowing them to bring those profits back to the U.S. tax-free or almost tax-free. This means more investment will be made overseas rather than here in the U.S.[emphasis added]
And:
Corporations would not just shift real investments (real operations and jobs) overseas. They would also respond by increasing the amount of profits they shift to offshore tax havens through sham transactions that exist only on paper. In fact, the proposal would give the greatest benefits to the worst corporate actors, those who shift profits offshore to avoid U.S. taxes.
A U.S. company that is doing real business in another country typically will reinvest those offshore profits in factories, oil wells or other assets, making it difficult to bring those profits back to the U.S. But a company that is engaging in profit-shifting (disguising U.S. profits as “foreign” profits through transactions that exist only on paper) has likely merely shifted profits to a tax haven subsidiary that consists of little more than a post office box. It’s much easier to repatriate these offshore profits than the offshore profits from real business activities.
Also, a U.S. corporation that is doing business in a typical foreign country is already paying some tax to the foreign government, which means they can already repatriate those profits to the U.S. without paying the full 35 percent U.S. corporate income tax rate. But a U.S. corporation that has shifted its profits to a tax haven is typically paying no taxes to the tax haven government, which means they would pay the full 35 percent U.S. rate if they repatriated those profits under current law. U.S. corporations shifting their profits to tax havens therefore stand to gain the most from a repatriation holiday.[emphasis added]
Unfortunately, there is a history here with the senior Senator from New York’s advocacy of corporate interests over the interests of the people, as I wrote in “The Audacity of Greed”:
As The New York Times noted, “He has long been a pro-business Democrat and a fund-raising machine for the party, as well as a vociferous supporter of Wall Street issues in Washington, much the way Michigan lawmakers defend the auto industry and Iowa politicians work on behalf of corn farmers.” At a breakfast fundraiser held by the titans of Wall Street in September 2008, just as the financial crisis was upending the lives of millions of Americans, Schumer reassured his audience. “‘We are not going to be a bunch of crazy, anti-business liberals,’ one executive said, summarizing Mr. Schumer’s remarks. ‘We are going to be effective, moderate advocates for sound economic policies, good responsible stewards you can trust.’”
Unfortunately, Schumer’s trustworthy economic stewardship seems to extend only to his constituents on Wall Street, and not to the citizens he has been elected to serve. “He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public,” said John C. Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. “It has hurt the American investor first and the average American taxpayer.”
Schumer has been most protective of the private equity and hedge fund moguls—with the latter having played a major role in the upheaval of the financial system with its huge bets on mortgage-related securities and its pursuit of gigantic profits generated in large part by the launching of destabilizing corporate takeovers that were financed by massive amounts of new debt.
The complete lunacy of this proposal is that corporate America is not lacking for cash. It has one trillion dollars right now in corporate treasuries that could be spent on job creation.
This is not about the lack of money.
It’s about a lack of will or interest in creating good-paying jobs for the millions of people who need work.
Our position should be: no tax “holiday” and a repeal of all the tax laws that allows the deferral of taxes until they are “repatriated”. Pay the taxes. Pay them now–like all regular Americans are required to do.