I think we all saw this coming.
We’re easing out of a recession. The deficit is climbing. Companies *might* be hiring again, depending on the sector. Wall Street is inching back up, salaries and bonuses included. Retail sales are rebounding.
It’s all good, right? We’re getting there, the President keeps reminding us, as he reiterates that “we’re all in this together.”
Um, except for those great big companies – “over there.”
This week, Treasury Secretary Timother Geithner addressed an issue that’s been making the rounds which would give multinational companies a tax break. In the midst of all of the clamoring about lowering the corporate tax rates in the US (since we’re second only to Japan in terms of the highest tax rates), US lawmakers are considering throwing corporations yet another bone: a tax holiday.
Here’s the deal. Under existing law, US companies can more or less stash cash in offshore companies for eons and not have to pay tax on it until they repatriate it. This is, of course, not at all the case for individuals, as you are no doubt aware due to the current
witch hunt stepped up efforts by the IRS to find unreported individual offshore accounts. But companies have a different set of rules.
By most estimates, US companies have stockpiled earnings of more $1 trillion – roughly the size of the current federal deficit. That’s a lot of cash that we’d like to see here, no?
So GOP leaders have come up with an idea to get those companies to bring back the cash: lower the tax rate. Rep. Eric Cantor (R-VA) and Sen. Orrin Hatch (R-UT) are said to be proposing a “tax holiday” which would temporarily drop the corporate tax rate for the purposes of expatriation.
Read that again so that we’re clear: it’s not a tax break for existing small businesses or companies that have faithfully reported their worldwide earnings for years. It’s not a break for companies who have chosen to keep their assets in the US. It’s not a break for companies who have kept factories open only in the US, hired US workers or pursued new ventures here in the States. It’s a break for companies who have basically deferred the reporting of income by parking dollars offshore.
A little context here before you start hurling virtual tomatoes at me: I believe in a global economy (in fact, many of the clients at my law firm are international). I believe in competitive tax structures. I believe in tax planning. I believe that you shouldn’t have to pay a dollar in tax more than you have to under the existing laws.
So this isn’t about whether the existing structure that allows a company to park funds offshore is fair or not (though I do have strong feelings about how much of this accomplished – that’s another post for another day).
But it is about something else I believe in: fairness. Notwithstanding any other issues (yes, it would be great to get those dollars here and yes, companies will find a way to lower the tax on it even further), what kind of message are we sending to our taxpayers? If you hold out long enough, you’ll eventually get your way?
It’s the kind of behavior I seek to discourage with my children but apparently it works when it comes to companies with offshore funds, at least with members of Congress. It’s the equivalent of corporate America threatening to hold its breath until it turns blue – and Mama Congress finally giving in because she can’t handle the tantrum.
Sen. Hatch, for his part, wants to address the issue, as part of a broader look at corporate tax reform. Geithner kind of agreed, saying:
We are not going to look at a [tax] holiday outside the context of comprehensive reform.
The thing is, I won’t argue with either of them that something needs to happen in terms of tax reform. I am not so sure that attempting to woo corporate dollars back to the US without a long term strategy for dealing with our corporate tax structure makes any sense. These companies aren’t stupid: they’re not going to repatriate tax dollars here at a lower rate and then decide not to do anything differently the next go round. This just reeks of pandering and PR ploys and not at all of reform and strategy. We talk a big game about tax reform in this country. Congress, however, just keeps eying short term “solutions” and band aids. When, I wonder, are we going to get serious?