Proponents say a repatriation tax break could be "the next stimulus," inducing multinational...


Proponents say a repatriation tax break could be "the next stimulus," inducing multinational corporations to inject at least $1T into the economy. But that’s not how it worked in 2005, when the U.S. offered companies a similar tax incentive. Though they brought $312B back to the U.S., 92% of the money was returned to shareholders in the form of dividends and stock buybacks.

Comments (26)
  • bricki
    , contributor
    Comments (1096) | Send Message
     
    Returning money to me would be pretty stimulating.
    20 Jun 2011, 11:14 AM Reply Like
  • WMARKW
    , contributor
    Comments (10787) | Send Message
     
    You sound an awful lot like my wife.
    20 Jun 2011, 02:12 PM Reply Like
  • wyostocks
    , contributor
    Comments (9113) | Send Message
     
    Let me understand this, paying out the money to shareholders to spend as they may doesn't inject that money into the economy?
    20 Jun 2011, 11:14 AM Reply Like
  • Tack
    , contributor
    Comments (16274) | Send Message
     
    wyo:

     

    Of course not. It's not "fair."

     

    The corporations should just bring that money back and donate it directly to various Government agencies for distribution to the more "deserving."

     

    Do you understand now?
    20 Jun 2011, 11:45 AM Reply Like
  • wyostocks
    , contributor
    Comments (9113) | Send Message
     
    Tack

     

    Silly me. I missed that point. I was under the false thought that the money belonged to the company not the government.
    20 Jun 2011, 11:48 AM Reply Like
  • joro_ianev
    , contributor
    Comments (400) | Send Message
     
    And those shareholders spent the money. So, what's the problem?
    A stupid article -- one that I have come to expect from the socialist propaganda machine called the NYT.
    20 Jun 2011, 11:14 AM Reply Like
  • The Enterprising Value Inve...
    , contributor
    Comments (571) | Send Message
     
    because the government is gonna do a better job "spending" that money....sheesh
    20 Jun 2011, 11:16 AM Reply Like
  • Windsun33
    , contributor
    Comments (4431) | Send Message
     
    At least some of the dividends got spent. But one possible easy way around the situation is to do what one politician advised - bring it back with no tax penalty, but require that 15-25% be spent on new hires and/or new equipment purchases.
    20 Jun 2011, 11:16 AM Reply Like
  • wyostocks
    , contributor
    Comments (9113) | Send Message
     
    And what if those companies don't need more people or equipment?
    20 Jun 2011, 11:23 AM Reply Like
  • Windsun33
    , contributor
    Comments (4431) | Send Message
     
    Hardly a perfect solution no, but one option to put on the table to get the cash back here.
    20 Jun 2011, 11:27 AM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1422) | Send Message
     
    The logic behind this comment doesn't make much sense:

     

    "People say a repatriation holiday will bring more money into the US economy. There was a repatriation holiday in 2005. The companies distributed the money to shareholders, therefore, the money was not brought back into the US economy."

     

    Most of the shareholders live in the United States, so if they were paid dividends or the value of their stock increased, then there would be more money pushed into the US economy. It would simply be spent by different parties.

     

    This could result in more capital for a small business, or a purchase of consumer goods, or even investment into higher-growth companies. Hence, there's no reason to believe that the shareholders would be less likely to use the money productively and have it benefit the US economy than the company would.
    20 Jun 2011, 11:22 AM Reply Like
  • Tony Petroski
    , contributor
    Comments (6356) | Send Message
     
    A metaphor: The local shakedown artist tells the baker "I'm only going to take $100/day instead of my usual $200, but I want you to use that extra $100/day to expand your business."

     

    Would the baker expand at that location?
    20 Jun 2011, 11:25 AM Reply Like
  • montanamark
    , contributor
    Comments (1455) | Send Message
     
    as long as obama is in the WH these companies wont "inject" $ into the economy. they will live conservatively, hoard cash, avoid taxes and hire sparingly.
    they have cash now and they are not "injecting"
    20 Jun 2011, 11:28 AM Reply Like
  • halconnoche
    , contributor
    Comments (68) | Send Message
     
    So if it is returned to shareholders, wouldn't the dividend then be taxed? And they would be taxing the higher income earners so that would make greed and envy crowd happy.
    20 Jun 2011, 11:30 AM Reply Like
  • kmi
    , contributor
    Comments (4581) | Send Message
     
    Ah. I see, corps couldn't find a loophole to pass this revenue through so the current strategy is to campaign for the gov't to bring it back for them, with the acceptance of the masses by using the 'weak economy' line.

     

    Considering multinationals are the only benefactors of the recent propping up of the economy and the middle class is still struggling, and considering that multinationals only have this capital overseas as a way to reduce their tax rate, I'm not on board this, not without caveats, no way.

     

    Reduce the corp rate so I can benefit but don't tell me its ok the guys who have consistently and over a long timeframe circumvented the corp tax rate now have a right to a tax holiday after not paying taxes all these years.
    20 Jun 2011, 11:53 AM Reply Like
  • Morg
    , contributor
    Comments (250) | Send Message
     
    My concern here is that having routine repatriation tax holidays will only encourage multinationals to continue this behavior of holding money offshore. As the article points out this would be the second tax holiday in a decade.

     

    A workable solution needs to be found to encourage companies to bring money home on a continuing basis. As it is they have every incentive to hold it away as long as possible.
    20 Jun 2011, 12:50 PM Reply Like
  • Tack
    , contributor
    Comments (16274) | Send Message
     
    Morg:

     

    They have an incentive to keep profits overseas, not because they anticipate tax holidays, but because taxes are too high. One could even ask why corporations should be subject to any taxes at all on income not earned in the U.S. Taxing companies on global income not only provides and incentive for keeping the profits overseas, it provides an incentive to move the entire nexus of business (HQ, the works) elsewhere.
    20 Jun 2011, 01:02 PM Reply Like
  • Morg
    , contributor
    Comments (250) | Send Message
     
    Tack,

     

    Good point.

     

    However, if they didn't tax foreign earnings at all wouldn't that simply encourage companies to focus their profit making efforts oversees.? In essence wouldn't we be encouraging economic activity abroad and discouraging it at home?

     

    As a private individual I cannot work in France and not pay income taxes. I am still expected to pay my taxes regardless of where in the world I am. I don't see why corporations should be treated differently than individuals here. Perhaps the government believes it is easier for companies to change residency than it is for a person to drop their citizenship. Thus they have the different rules so as not to cause a scenario where we would see an exodus of industry.
    20 Jun 2011, 01:20 PM Reply Like
  • Windsun33
    , contributor
    Comments (4431) | Send Message
     
    How is it a "loophole" when the money was earned overseas? Built in overseas factories, by overseas workers, and sold overseas - what claim does the govenment have on any of it?
    20 Jun 2011, 01:24 PM Reply Like
  • kmi
    , contributor
    Comments (4581) | Send Message
     
    Windsun:

     

    The 'loophole' is the mechanism by which it is kept overseas. We've had this conversation before. Without going into too much depth, a simple example is of companies that create offshore entities, then 'sell' their I.P. to those entities and 'lease' the I.P. back from them and pay them 'royalties' and move the money through several countries where they may or not have a physical presence or employees.

     

    There are also significant tax loopholes that enable multinational entites to move 'income' around in ways that allow them to avoid taxes. Both of these are examples of practices that favor large multinational entities over domestic ones, by allowing them to pay lower effective tax rates than domestic entities.

     

    The point being, the tax code is picking winners by skewing the playing field in their favor.

     

    Not only do they avoid paying what I pay by using complex entity structures and complex strategies devised by highly paid tax attorneys, but now I am expected to add insult to injury by letting them bring the money back tax free?

     

    If the government wants to provide these companies with tax holidays, then it better be prepared to lower my corporate tax rate to what companies like GE pay, thanks.
    20 Jun 2011, 01:39 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3130) | Send Message
     
    Yeah, that would be cool, an effective 1% tax like GE gets. Big companies have the benefit of being able to exploit the tax system more.

     

    I don't see the repatriation moving towards dividends and buybacks as a bad thing. While it would be nice to see that repatriation going towards hiring, companies will just look at it as an expense, and more likely avoid it. The two things could be tied together, though I would bet that large multi-national companies would rather avoid be coerced into hiring.
    20 Jun 2011, 01:50 PM Reply Like
  • Windsun33
    , contributor
    Comments (4431) | Send Message
     
    Looks to me like the real question here is why are the US tax rates so high on corporations? There is no incentive to bring any money home, nor to expand in the US.
    20 Jun 2011, 01:26 PM Reply Like
  • kmi
    , contributor
    Comments (4581) | Send Message
     
    I agree exactly with that sentiment, and further propose that this is simply another failure of the tax code.

     

    If main street's economy wasn't so bad, we had a brief window where 2012 looked like it might be about the tax code, but now it looks like it is going to be about the economy and jobs, because that's a nice big whale that anyone can harpoon.
    20 Jun 2011, 01:42 PM Reply Like
  • WMARKW
    , contributor
    Comments (10787) | Send Message
     
    Once again, let's think about the things that corporations would do with that repatriated income if it were not taxed.

     

    1. Fund operations, keep people, buy stuff, make stuff and sell stuff in the US. Not a bad deal.
    2. Buy back shares. Implicit assumption here is that they will pay a higher than normal price, raise the price of their stock and someone will benefit and thus have to pay a capital gains tax.
    3. Pay dividends to shareholders. And dividends are taxed at the individual level. Not a bad thing.
    4. Make investments in capital equipment. Good for the economy.
    5. Pay off corporate debt. Good for the economy.
    6. Put it in a bank an sit on it. Good for the bank's balance sheet.
    7. Undertake a M&A transaction. Will likely boost the target's stock price resulting in....capital gains events for the target's shareholders.

     

    So....what are we waiting on. There really is no reason to even tax U.S. corporations on their U.S. income considering all the things they would otherwise do with their residual income.
    20 Jun 2011, 02:10 PM Reply Like
  • fshattuck
    , contributor
    Comments (62) | Send Message
     
    And like the article stated - only 2 of those options actually happened - dividends and stock buybacks - nothing that actually created or protected any jobs.
    30 Sep 2011, 10:38 AM Reply Like
  • joro_ianev
    , contributor
    Comments (400) | Send Message
     
    So by the same silly argument it would seem that all those attempts by the Fed to reflate assets will NEVER trickle down to the economy and thus employement, right? Is it just the government who can create jobs?

     

    Sheesh, think before you say something, mate! Dividends put money directly into the shareholders' pockets and that money does have a multiplier effect whether it gets spent of whether it funds the next Apple. Stock buybacks increase share prices and allow shareholders to sell with a gain. Again, money in the pockets of shareholders.

     

    But let's not do a tax holiday. Even better, let's continue with a 35% tax rate and tack onto it another 5%. Because apparently until we get to 30% unemployement we are incapable of learning.
    8 Oct 2011, 01:42 PM Reply Like
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