Congress eyes increasing corporate welfare via another ‘tax holiday’

Posted on June 22, 2011

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Did you know that the Obama administration – fueled by about two dozen Republicans in Congress and the lobbyists for  Microsoft, Oracle, Pfizer, Apple and several other major firms – are pushing for a corporate tax “repatriation” holiday? The plan is to give select multi-national corporations “special dispensation from tax laws” on the more than $1 Trillion in cash the companies are storing in overseas banks that isn’t subject to the statutory 35 percent corporate tax rate.

The pitch is that if the companies will bring that cash back to the United States – with no fear of being taxed on it – then the companies will use that money to create jobs. Members of a very Wall Street-friendly think tank are touting the idea as yet another “stimulus” to create jobs – even though not one supporter of the plan has been willing or able to show exactly HOW this tax break will create a single job.

The plan is widely viewed by economists, tax experts and hundreds of thousands of small business owners as yet another useless government giveaway to a handful of multinational corporate behemoths in the never-ending corporate welfare of Washington.

The lobbyists, and the politicians they own, are pushing to inject the holiday into congressional negotiations about raising the federal debt ceiling. That’s right, they are angling to hide the plan deep in the already obfuscated debt ceiling proposals. They say that if Congress will grant companies a one-time tax holiday, allowing that money to be brought back to the states at a rate of about five percent – or less – companies would be willing to do it.

The trouble is, this has been done before, and it didn’t work. In 2004, Congress approved almost the exact same plan. A total of 364 companies brought back $284 billion of overseas cash for the 2004 tax holiday. But even during the economic boom years of the housing bubble, the fresh cash did not create new jobs or investments. Instead, companies simply used the cash to enrich their shareholders, using the money to buy up their own stock, driving share prices higher.

A 2009 paper by three researchers with the National Bureau of Economic Research came to a similar conclusion: “A $1 increase in repatriation was associated with an increase of almost $1 in payouts to shareholders.” Dollar-for-dollar, the money brought back to the U.S. went right into the pockets of investors and corporate executives.

What’s more, an April analysis from the Center on Budget and Policy Priorities found that 10 of the biggest players in the “WinAmerica Coalition” are coveting a combined $52 billion in domestic cash. The money’s already here, and it’s not being used to create jobs or infuse the U.S. economy. If the companies aren’t using the excess cash they have now to create jobs, they sure as hell aren’t going to spend any “free” money they bring in from overseas on jobs, either.

Big corporations have long stashed assets in tax haven countries like the Cayman Islands or the Bahamas that feature low tax rates so they can avoid paying taxes in the U.S. Even when firms are conducting their actual business within U.S. borders, having an address in a tax haven nation let’s them sit back and laugh at the IRS. According to a 2008 report by the Government Accountability Office, 83 of the 100 largest American companies operate subsidiaries in nations identified by the GAO as tax havens. Of the 10 companies currently lobbying hardest for the tax holiday, four – Apple, Cisco, Microsoft and Pfizer – operated a combined 572 sub-companies in tax shelter countries.

The plan also includes the call to reduce the corporate tax rate from its current 35 percent to 5 percent, permanently. That an 85 percent reduction. That’s 85 percent LESS REVENUE. This is the ingenious plan to tackle the federal debt?  Systematically reducing the amount of money available to pay it? Gosh … I can’t imagine why anyone who owns a calculator or can do simple 1-to-100 math in their head would think this is a bad idea.

While the Congressional Budget Office has not analyzed the implications of such a move for the federal budget deficit, the Joint Committee on Taxation, a nonpartisan congressional committee focused on tax policy, has. The committee’s conclusion? “Bringing the money back” would actually COST the government $78.7 billion over ten years, as companies scored a sweetheart tax deal on cash they planned to bring back to the country anyway. Investing it in infrastructure, helping small local business – there’s a lot of things the federal government could do with $80 billion instead of throwing these major corporations another fat-covered bone. Anyone who thinks the companies won’t just dividend it out, buyback stock, or use it to give their executives more bonuses is just fooling themselves.

As corporate titans lobby for tax breaks, programs for small firms are being strangled. The Obama administration’s proposed 2012 budget would cut funding to the Small Business Administration by 45 percent, and cut the P.R.I.M.E. Program, which provides $5 million worth of grants a year to entrepreneurs seeking technical training on how to begin hiring more employees.

Why am I personally upset about this? Because all three times I applied for grants and federal business assistance for the company I started in 2009, I was told my company (an LLC of two employees) was “too small to qualify for federal assistance.” We didn’t have enough capital on hand to qualify for programs. If we had cash on reserve, we could get loans or grants from the government.

You follow that, don’t you?  The small business assistance operations of the United States government told me that my small business couldn’t get assistance because we needed it too much. If we didn’t need money, we’d be able to get money.

Early this year, the tax holiday proposal seemed politically dead in Washington because it was clearly a stupid move in the face of the federal budget deficit and continued anger over the bank bailouts. But today the idea has more momentum. Of course, the $13.7 million in lobbying money that has been poured into Washington by just 13 companies in the “WinAmerica Coalition” in just the past six weeks … that has nothing to do with the “renewed interest” in the plan, does it? But the coalition has that flag-wavey, uber-patriotic name, so it just HAS to be good for “real Americans,” right? It couldn’t possibly be just another money-making scheme for billionaires that the stupid, unquestioning couch potatoes of America wouldn’t ask for details about, couldn’t it? (That’s sarcasm, in case it wasn’t coming across.)

Like I said, if you don’t need the money, you get the money.

It’s the core operating procedure of the United States government.

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