Pirates of the Caribbean alert: Offshore corporate cash hoard
Paging Captain Jack Sparrow. The modern equivalent of pirate treasure islands is holding some $1 trillion of corporate cash by U.S. corporations.
The reason is simple: U.S. corporations don’t have to pay U.S. taxes on the money when it’s sitting in offshore banks. They can defer taxes indefinitely.
While domestic corporations are free to enjoy the many benefits of American infrastructure, the money they offshore isn’t doing North Americans any good. Bring the money back to create jobs and give corporations a reduced tax rate if they do so. It will also trim the U.S. budget deficit.
One tack that doesn’t work for the middle class is to give corporations another no-strings-attached break for just bringing the money back. Companies shouldn’t be rewarded for being forced to do the right thing. It’s like paying a bonus to get a driver’s license.
Besides, the repatriation break has been tried and was a bust. “A `tax holiday’ on repatriated funds is a proven failure,” writes William Gale and Benjamin Harris of the non-partisan Tax Policy Center. “It was already tried in 2004 and it didn’t work.”
The last $312 billion tax holiday was a bonanza for corporate shareholders that resulted in little or no North American investment and almost no job creation. “Even firms that showed some evidence of being financially constrained or that explicitly lobbied for the tax holiday did not increase domestic investment, domestic employment or R&D,” wrote three researchers for the National Bureau for Economic Research last year.
Of course, the concept of offshoring capital is nothing new in the world of multi-national corporations. For years they have trundled their money where the taxes and transparency are the lowest.
Has the irony eluded corporate privateers that they earn most of their money in wealthy countries with high infrastructure costs then “bury” it in subsidiaries and banks on mostly small, sparsely-populated islands in the Caribbean like Antigua, Cayman and Virgin Islands? Blackbeard had nothing on corporate treasurers.
Of the $1 trillion that’s believed to be offshored, about $400 billion of that was moved out of the U.S. by financial services corporations — the same ones that already benefited from a king’s ransom of a bailout in 2008.
Citigroup, Morgan Stanley and Bank of America had more than 800 offshore tax havens in 2008, according to a U.S. General Accountability Office study. The list goes on and includes brand-name companies like Apple, Google, Microsoft and Procter and Gamble.
It’s not hard to make the argument that these companies are ethically challenged when it comes to corporate citizenship. They are not creating many jobs and sitting on monumental cash hoards in an era of double-digit unemployment in most cities — when you include young people and those who have given up looking for work.
Tax-buccaneering corporations are not only stiffing their country and communities they serve, they are also shortchanging their shareholders.
At the very least, if they are not investing in human capital or research & development, cash-rich corporations should cut some reasonable dividend checks to their loyal stock owners. There are plenty of older investors who could use the quarterly bump up since they are earning nothing from government-insured savings products after inflation and taxes.
Still, the financial dilemma looms: If you’re a corporate CEO, there’s no way you’re going to voluntarily take a full hit on taxes if you repatriate profits. You’re going to use all the political muscle at your disposal to avoid that situation.
One way of allowing a corporate tax break would be to create a national infrastructure bank in the U.S.
Corporations that contribute to the bank would get a write-off. It would be similar to getting a tax break on a charitable donation. That’s the proposal of Reed Hundt of the Coalition for Green Capital and Thomas Mann of the Brookings Institution.
I would take this repatriation plan one step further. In addition to funding things like bridges and water plants, also set aside money for public education. Education is infrastructure in a much more profound way than a highway. Hobbled by the housing recession and lower tax receipts, local school districts and state colleges are forced to lay off staff and cut budgets, yet receive a paltry amount of money from the federal government.
Let’s bring corporate booty created by tax-paying Americans back from sun-soaked tax havens to fund our future. Congress can wield a lot of shovels to fix this problem.
[Source: By John F. Wasik, Reuters columnist, 08Jul11]
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