popular than investing in our home land? Can't you see every member of Congress
proudly standing and proclaiming their support for investing in our great home land?
You might as well have called it the Puppies and Kittens and Apple Pie and Cute Kids Act
of 2004. According to Floyd Norris of the New York Times, the idea was quite simple.
International companies were given a one-time large tax break on overseas profits. The
promise was that this money would be used to encourage investment in this country.
New plants would be built and jobs created. These companies promised to do more
research and development. Instead of being taxed at the 35% rate, normal for corporate
profits, this act would chop the rate to around 5%for profit brought back and invested
in the "Homeland". Oh, by the way, the language of the law said that the money could not
be used to raise stock dividends or repurchase shares. So far, so good, right? The
companies get a tax break and the "Homeland" gets much needed investment. How
could you vote against this? What kind of grinch or cynical nay-sayer would you have
to be to oppose such a simple and appealing plan?
As expected, with the help of the Bush Administration, the Act passed and some
$300 billion of overseas profits were brought back from foreign subsidiaries. Now,
three professors have examined what actually happened to the money and "surprise,
surprise", their analysis shows that over 90% of the profits repatriated were used to buy
back shares and increase shareholders dividends. This, of course, was what was precisely
prohibited by the language of the bill.
The study, given the great title of "Watch What I Do, Not What I Say: The
Unintended Consequences of the Homeland Investment Act", chronicles what was done
with the money. The study concludes there is no evidence that any of the companies
used he money for what they promised they would when they lobbied Congress to pass
this patriotic piece of legislative legerdemain. There was no increase in investment in
this country, no increase in research and development, no increase in jobs, and no increase
in new plants or facilities. The unbelievable part, if this isn't enough already, is that the
very companies who lobbied for this corporate tax giveaway failed to live up to any of the
promises they made about what they would do with the money. The United States
treasury lost over $100 billion in tax revenues (that's you and me, by the way, and we
have to pay more in taxes to make up for that loss), and we got zip, zilch, nada for this
generous little gift to corporate America.
The report concludes that "the restrictions placed on how the money was to be
used were completely ineffective". The authors cite the case of Dell Computer. Dell had
pushed hard for the law, and promised that they would build a new plant in Winston-Salem,
North Carolina. They brought back into the country some $4 billion in profits and spent
$100 million on the plant. Sounds perfect, right? This is just how it was supposed to work.
However, the study shows that Dell admitted the plant would have been built anyway. Oh,
and a short time later, the company used $2 billion for a share buy back, precisely what
the law supposedly prohibited them from doing.
If your temperature is not rising yet, this gets even better. Remember, the
companies get a tax gift in return for bringing money home and investing it here. The
study concludes that many companies got the tax break, but never returned any money
to the U.S. They knew the law was coming, so they increased foreign investment (took the
money out of this country and invested it somewhere else); and then when the law passed,
they claimed the profits and got the tax break without reducing foreign investment or
using the money to benefit Americans in this country. The study called it "round tripping".
It does not appear that anyone broke any laws in all of this. (How that is
possible I have no idea, since the language of the law was so clear.) The reason appears
to be that companies were able to move money around so as to take advantage of the tax
break on the one hand, and then use different money, freed up by the nice little gift from
Congress, to buy back shares and for other purposes the law prohibited.
Oh, and to add insult to injury, the study authors throw in a little trickle-down
economics. While concluding that this law was a gift for corporate America that cost you
and I billions of tax dollars, while not doing any of the things that would benefit us; the
authors do offer an up note by concluding that many of these billions went to share holders
who must have spent some of that "found" money, and trickled down some of it into the
economy which benefitted us in some way.
Just a few weeks ago, President Obama made a modest proposal to close some
of these foreign tax loopholes which encourage companies to spend their money in other
nations instead of here. He claimed this has resulted in job losses and a reduction in
investment in our "Homeland". You would have thought he had nationalized the means
of production from the howls coming from the business world. Business spokespeople
attacked the President. They claimed that closing the loopholes would hurt the ability of
businesses to compete overseas and will cost jobs in this country. The president of
Microsoft threatened to immediately move jobs overseas if the President attempted to
close any of these tax gifts to corporate America.
The next time you hear corporate America talking about jobs and puppies and
kittens and investing in the "Homeland" to benefit all Americans, please remember that
what they say and what they do bear no resemblance to each other. What do you think?
I welcome your comments and rebuttals. Please send them to email@example.com