If You Lead A Horse To Water Will It Drink?

Posted by: Howard Silverblatt on October 22, 2010

The new discussion on cash repatriation is very political. The 5.25% tax rate from the repatriation (American Jobs Creation Act of 2004) in 2004/5 still doesn’t sit well with many, given that there ‘appeared’ to be no jobs or increased U.S. Capital Expenditure created, and a case has been made that it permitted more buybacks. Counter arguments to that are ‘if they bring it back they will spend it’ has developed, but also has comparing it to the banks, ‘if you give them money they may not lend it’. Then there is the appearance of giving corporate America a much lower tax rate while personal rates are scheduled to go up - which is being countered with examples of companies spending abroad so they don’t get taxed. True economic issues, but also a lot of politics.

From my view, given the large holdings of cash (and limited data on exactly how much is abroad), and the ability to borrow from one pocket to fund the other, short-term, I would need to be shown that the money would stimulate the economy, and create U.S. jobs. Longer-term, the issue of domestic growth verses current tax revenue will need to be addressed, perhaps as early as next year, under a reorganized management in Congress.

Reader Comments

Mike

October 22, 2010 3:32 PM

The attached paper destroys the argument for a "tax holiday":

http://www.drandreassimon.com/Site/About_Me_files/CBPP_2009.pdf

Basically, only 843 large multinational companies benefitted from the last holiday. The vast majority used the money to buy back stock and many of them laid off large numbers of personnel at the same time they were repatriating the money.

Congress specifically urged in 2004 that a tax holiday should not be undertaken again or it will only encourage further offshoring of profits in anticipation of the next tax holiday.

Strategery

October 22, 2010 8:13 PM

Make no mistake, repatriation will only benefit corporations, executives and shareholders. Just like uncontrolled illegal immigration, “free trade” and unregulated financial markets; only a select few will benefit. I suggest closing loopholes that allow corporations to shelter their money overseas and ones that encourage outsourcing. We also need trade barriers to punish outsourcing and reward domestic producers.

Westernfan

October 24, 2010 7:49 AM

Whether you're talking about repatriation of overseas profits, marginal tax rates, or re-capitalizing banks, the issue is the same. We need to support/incentivize the actual investments (or loans) that produce the desired economic activity. Merely trimming the marginal tax rates does not insure these types of desireable investments get made.

nora

October 26, 2010 1:37 AM

I don't quite understand the "benefit" of the lower ratrepatriation tax rate. I mean, what if the companies use the money for paying the debt or the distributing the dividen?

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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