Do you remember the “hostage” movie meme of the 80s, 90s and early 2000s? Sylvester Stallone, Harrison Ford, Bruce Willis, Denzel Washington, Mel Gibson and other leading men all churned out movies with similar plot lines: Someone has been kidnapped or captured, and the hero swoops in to save the day (usually).
Well, someone call in the clowns, because this next “hostage” plot reads like a bad script straight out of Hollywood:
The actors: Google, Apple, Microsoft, Duke Energy, and other large corporations.
The setting: Modern day America, where unemployment is high and the economy is struggling.
The conflict: The only thing that can revive our economy – massive corporate profits – are trapped overseas!
The plot: Find a hero to bring those profits home!
Here’s the script:
With high unemployment and a struggling economy as a backdrop, large multinational corporations (MNCs) like Google, Microsoft, Apple and Duke Energy have suggested a corporate tax holiday on the income they have stashed in offshore bank accounts and tax shelters. The companies claim the profits will drive new hiring and domestic investment.
The only problem is, Americans have seen this movie before – and it didn’t end well.
In 2005, the Bush Administration approved the Homeland Investment Act (HIA), which offered a similar corporate tax holiday to spur hiring and investment. It offered corporations – at least, those with great accountants and sophisticated tax shelters – the chance to bring income back to the U.S. nearly tax free. Eight hundred companies took advantage of the legislation, to the tune of $312 billion total.
Corporate profit was high, but the promised hiring and investment never materialized. In a report on the HIA, the National Bureau of Economic Research reported that nearly 92 cents of every dollar went to shareholders in the form of dividends and buybacks – and not to hiring, purchasing or reinvestment.
Here’s the plot twist: Many of the corporations that brought back billions in tax-free profits, “laid off domestic workers, closed plants and shifted even more of their profits and resources abroad in hopes of cashing in on the next repatriation holiday” – which generated even more offshore profits:
- “Merck brought back $15.9 billion in October 2005. The next month, it unveiled a restructuring plan to cut 7,000 jobs. Over the next three years, about half those cuts were made in the United States, where the company’s employment fell to 28,800 jobs, from 31,500.” – NYT
- “Hewlett-Packard repatriated money, $14.5 billion, and soon after it announced it was eliminating jobs, 14,000.” – NYT
Now these MNCs, like Pavlov’s dog, are just waiting for the tax holiday dinner bell to ring again.
Today, U.S.-based MNCs hold a combined $1.4 trillion in profits in overseas accounts. Courtesy of the U.S. tax code, they’re allowed to defer taxes on foreign profits indefinitely if they are invested outside the United States. The MNCs want that money to come home in the form of more executive bonuses and stock dividends, but they don’t want to pay the 35% corporate tax rate on it. So they’ve woven an elaborate story line of ‘hostage profits trapped overseas’ and offered what amounts to a stimulus by blackmail – they’ll bring home the money if we lower their tax rate to 5.25%.
This begs a larger question: why do Google, Apple, Microsoft and other MNCs, with $1.4 trillion in offshore profits, need a tax break?
These corporations already pay incredibly low or negative tax rates. One corporation who has joined in the tax holiday lobbying is Duke Energy, which has $1.3 billion in overseas profits. Duke’s CEO Jim Rodgers claims, “American businesses stand ready to step up and inject $1 trillion trapped overseas…” and, “Duke Energy alone has $1.2 billion held hostage overseas.” From 2008-2010, Duke Energy paid -3.9% in federal income taxes. And Microsoft – while reaping $100s of millions in tax breaks from Washington state – runs much of its business through offshore operations centers, reporting more than 2/3 of its income as “international,” even though more than half its sales occur in the United States.
They’ve got the red carpet all rolled out for their award from American taxpayers, but don’t be deceived by the empty promises of 2% growth and massive domestic investment. When billionaire CEOs cry poormouth and lament paying for the privilege of doing business in the U.S, we just need to tell them we’ve seen that movie before, and we don’t like the ending.
More To Read
August 19, 2022
Decades of underfunding has left the child care sector on the brink of collapse
August 16, 2022
We applaud the swift passage of this historic legislation and will continue to advocate for investments in the care economy