Saturday, December 13, 2008

The American offshore repatriation plan

There's an old tax wheeze that the offshorers like to wheel out on a regular basis. They say that it's often OK when money that is held offshore isn't taxed - because it gets taxed as soon it gets back onshore. So what's the problem?

Well, there are many problems. One is that the money is often spent offshore, before the tax can be paid. Another is that it is all too often brought back illegally (or in ways that are of questionable legality) using all kinds of tax gymnastics that stop the tax being paid. But here is a big one: the tax amnesty. These are billed as "one-off" measures to help bring the money home at times of stress (like now). They aren't part of the permanent tax code. Here's a lobbying effort for a new one (and one might suspect President George W. Bush of nurturing such plans, to enact before he leaves office.)

Seems like a good idea, at a time of stress? Here's what Citizens for Tax Justice in the U.S. had to say, in an article entitled "Congress Should Not Fall for Corporate America's Latest "Repatriation" Plan"

Corporate America is gearing up for the upcoming stimulus by recycling one of its favorite responses to any economic downturn. The plan is to let U.S. companies bring home, tax-free, the billions of dollars they have stashed away in offshore tax havens. Most of this money was actually earned in the U.S. but then deflected to tax havens through artificial accounting schemes.

Congress and President Bush enacted a similar “tax amnesty” program back in 2004, and huge sums were “repatriated” by some giant corporations. As almost everyone concedes, most of the repatriated money was used to buy back corporate shares and for other expenditures favoring management. There is no evidence that the tax amnesty added a single job to the U.S. economy. Anyone who thinks that repeating the 2004 mistake, with supposed new restrictions on the use of the money, might work out better this time is dreaming. After all, the precise reason that corporate executives favor the amnesty is that it provides extra cash to benefit themselves personally.

To be sure, there could be some benefit from unlocking that huge horde of offshore tax-avoidance money. But the approach that Corporate America is pushing is totally backwards. The right answer, from a fairness and economic efficiency perspective, is to impose a one-time 35 percent tax on the entire amount of the tax-sheltered offshore profits.

Taxing those profits and then allowing them to be repatriated without further tax is certainly a fair result -- it would put the tax avoiders in the same position as U.S. companies that dutifully paid their fair share of taxes over the years. Perhaps more important in these troubled economic times, the move would also get high grades on efficiency grounds. A one-time levy on corporate tax-avoidance funds not only would have no undesirable effects on corporate behavior, it also might even discourage companies from shifting profits offshore in the first place.

The suggested tax on offshore tax-avoidance money would raise considerable revenue, perhaps as much as $350 billion. That revenue could be used for domestic public works projects, which could stimulate the domestic economy without resulting in any increase in the federal budget deficit.


Blogger Ginsights said...

Repatriation of funds is not enough. Less visible, because it does not appear on the books, is that especially High-Tech companies have also transferred the rights to their intellectual property (documents, software, methods, trade secrets etc) to those taxhaven. Now much of the (non-routine) income from sales is due to those tax havens, so that the funds held there are rapidly replenished, and no long term motivation to invest in the U.S. exists.

10:26 am  

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