The lobbyists are out in force again. This, from PR Newswire, sounds convincing, on the face of it:
“U.S. corporations are making fewer domestic hires and investing less in U.S. operations, due to cash trapped overseas, according to a recent survey from the Association for Financial Professionals (AFP). High U.S. corporate tax rates create an incentive for companies to leave cash abroad, often permanently.”
Corporations can generally avoid, or ‘defer’ tax on their overseas operations, as long as they don’t bring that income back home (they might repatriate it to pay dividends to shareholders, for example.) The lobbyists are saying that if taxes at home were lowered, this overseas income would whoosh back into the U.S., and jobs would appear.
It all sounds so convincing – until you examine what is actually happening. Jesse Drucker of Bloomberg examined the issue in detail recently, looking at how companies used all sorts of shenanigans to get the money back while still avoiding the taxes, using schemes that were often dazzling in their complexity.
“One diagram resembled a schematic from the Manhattan Project.”
And they are, aided by platoons of accountants from KPMG and other big firms, dedicated to getting around the laws and undermining democratic processes of taxation. One strategy, a senior tax official explained, “would require certain “bells and whistles” to convince regulators of an actual non-tax business purpose.”
But, as a Tax Justice Network blog recently noted, all this repatriation of money isn’t going to create jobs:
“Joe Slemrod, economics professor at the University of Michigan’s school of business and former senior tax economist for President Reagan’s Council of Economic Advisers, says the business lobbyists’ arguments that repatriating over a trillion dollars of offshore cash would promote investment “holds no water at all”: U.S. companies are already sitting on a record pile of cash — $1.9 trillion in liquid assets, according to Federal Reserve data. They ain’t investing – and so how will letting them bring that money back make a difference? It will just mean higher executive bonuses and more private jets – and fewer public services.
In other words, it’s the same old nonsense as ever.