Big business is holding US jobs hostage — Trump should not pay the ransom
BY PAT OGLESBY, OPINION CONTRIBUTOR – 02/01/17 10:00 AM EST http://thehill.com/blogs/pundits-blog/economy-budget/317227-big-business-is-holding-us-jobs-hostage-trump-should-not
President Trump wants to create jobs. Global corporations want to trick him into giving them a tax cut. They are holding $2.5 trillion offshore. They’ll bring those trillions home and create jobs, they say. But first, America must give them a $500 billion tax windfall. No tax break, no jobs.
The president should have three problems with this repatriation tax amnesty:
It doesn’t work.
It sells out his base.
It rewards his enemies.
There is an easier way to “make America great again.” President Trump can make companies pay the tax without a tax cut, and then watch them bring the money home.
Tax laws that most people don’t understand are subsidizing U.S.-based multinational corporations. There’s ordinarily no tax on income of foreign subsidiaries until it’s brought back — “repatriated.” That is, until a U.S. corporation physically gets paid, America collects no tax. Multinationals have stashed $2.5 trillion of untaxed income offshore — they’re reluctant to bring that back because they’d have to pay the tax on it.
The solution is “piercing the corporate veil.” Congress routinely “looks through” corporate layers to tax easily shiftable income still owned by foreign subsidiaries. Congress can also look through layers to tax the multinationals’ deferred $2.5 trillion.
Technically, a congressional look-through would tax all the sheltered income of the foreign subsidiaries immediately, via a “deemed dividend”: Congress can “include in gross income” all those untaxed earnings, and they will be immediately taxable. That shuts the shelter down.
At our 35 percent rate, less standard credits for foreign taxes paid, the government would bring in some $718 billion. Those are taxes workers won’t have to pay.
But wait. The multinationals want to bring that money home, but they don’t want to pay their full tax.
If we compromise and cut the 35 percent rate to 10 percent, they would pay $206 billion instead of the $718 billion they owe. They say they’ll use lots of the remaining $2.3 trillion to create jobs. They soothingly call this $512 billion giveaway a repatriation tax “holiday.” It’s really amnesty — and an undeserved windfall.
So corporations are holding that $2.5 trillion hostage. They are politely asking Americans to pay ransom.
Nobody thinks it makes sense to make the multinationals keep that money offshore. But we don’t have to pay a ransom to free that money.
There’s a better way — repatriation with no amnesty windfall.
Repatriation tax amnesty doesn’t work
Fool me once, shame on you. Fool me twice, shame on me.
Repatriation tax amnesty doesn’t create jobs. There’s proof. Global corporations persuaded Congress to pass repatriation tax amnesty in 2004: the American Jobs Creation Act. Even with “the condition that the repatriated earnings be used for domestic investment,” the Congressional Research Service found “empirical evidence is unable to show a corresponding increase in domestic investment or employment.” The multinationals mostly bought back stock and paid dividends.
That’s great for corporations and shareholders, but it doesn’t deliver jobs.
Common sense says this: If you want to deliver jobs to workers, putting cash in the accounts of huge global corporations is a silly, roundabout plan. It’s inefficient, and ineffective.
There’s a simple, direct alternative: Just cut payroll taxes, as we did in 2011 and 2012. Workers and employers get all the benefit. Tax the multinationals’ $2.5 trillion and use the full $718 billion to cut payroll taxes — maybe for several years.
Here’s the key point: A mandatory look-through can happen without any amnesty. That way, America gets the desperately needed revenue in full. After that, corporations can bring the cash home, whenever they want. Win-win. America gets revenue, and corporations’ hands are untied. Oh, and the tax revenue allows Congress to cut payroll taxes, a sure-fire way to create jobs.
No deal, say the multinationals. They say, “No tax break means we leave our money offshore.” But paying this kind of ransom is tricky, because it sets us up for more hostage-taking. The failed 2004 amnesty was sold as a one-time only deal. Now the multinationals are back, bringing to mind the pleasure boat named “Never Again II.”
It sells out the president’s base
The direct beneficiaries of a repatriation tax amnesty windfall are all soulless global corporations. They have zero patriotism. They are the quintessence of the Establishment that the president ran against.
Evangelicals and the Tea Party shouldn’t trust these huge global corporations. And they don’t. Neither do the Bernie Sanders supporters that President Trump reached out to in the general election. He promised them to oppose “global special interests” — like tax-advantaged multinationals.
The president’s voters may not understand this amnesty yet. But if they catch on, anyone who gives multinationals a $500 billion windfall will be asked: Who will pay instead? And whose side are you on?
It rewards Trump’s enemies.
The two biggest winners from repatriation tax amnesty windfall would be:
- Apple ($216 billion of stashed income, $67 billion in tax); and
- Microsoft ($124 billion of stashed income, $39 billion in tax).
Apple’s CEO, Tim Cook, wanted Donald Trump to lose, and hosted a general-election fundraiser for Hillary Clinton; Microsoft’s Bill Gates’s opposition was more circumspect. Not all CEOs of multinationals getting amnesty windfall opposed the president. But Trump ran against the establishment.
The establishment noticed — not just multinationals, but the whole globalist Davos crowd. By and large, these are not his friends.
And remember — America can get repatriation without the amnesty. Establishment multinationals will pay a boatload of tax, and Joe Sixpack will get a cut in his payroll tax. For President Trump, what’s not to like?
For President Trump to buy into the repatriation tax amnesty, he will have to make all three of these blunders:
- Buy a lemon.
- Blindside his base.
- Build up his enemies.
President Trump likes to say how smart he is. He now has a chance to prove it. America’s workers — and would-be workers — are waiting.