“The game is rigged and the American people know that. They get it right down to their toes.”
— Senator Elizabeth Warren
The game is rigged in ways big and small, as the powerful act to protect and extend their privileges. Business as usual in Washington is testament to that. Here’s the next fix that the corporate lobby is gearing up to sell in the coming weeks: a repatriation holiday.
“Repatriation holiday” sounds vaguely patriotic, resonant with country and returning home. But repatriation is merely a fancy term for one of the ways global corporations avoid paying their fair share of taxes.
Repatriation starts with a tax dodge known as deferral. Multinational corporations have carved out a loophole that enables them to “defer” paying taxes on profits earned overseas until they bring the money back to the U.S. That provides companies with a massive incentive to move jobs overseas or to report profits abroad.
Companies now have over $2 trillion dollars stashed abroad to avoid taxes, up 93 percent since 2008. About 45 mega companies account for 70 percent of the dough, led of course by General Electric, the poster child of tax avoidance. Naturally, they want to “repatriate” some of that money but avoid paying the taxes owed on it. They’ve lobbied hard for a “repatriation holiday,” that would enable them to bring the money back at a vastly discounted tax rate of say 5 percent or so, arguing that the money would be used to invest in new plants and equipment and create jobs, supplying a long-needed “second stimulus.”
Problem is, however, it is hard to con the same mark twice. They made the same arguments for the tax holiday on deferred profits that passed in 2004. But the promises proved false. There was no measurable increase in investment or jobs. In fact, many of the companies actually laid workers off. The money basically was used to free up other money for stock buybacks and increased dividends, hiking the value of executive stock options. Taxpayers got snookered and CEOs cleaned up.
So this week, former president Bill Clinton, the big dawg himself, put a new label on the old snake oil. Speaking before the “Fiscal Summit” of the Peterson Foundation Fiscal Summit (founded by Pete Peterson the equity fund billionaire who has spent a fortune arguing that America’s debts require cuts in Social Security and Medicare), Clinton tried out a revised spiel:
“I believe if we repatriated the money now on terms that required say, 10 percent, of it to go into an infrastructure bank with a guaranteed rate of return, tax-exempt, of X, as a first step towards corporate tax reform, you could get a lot of that money back in America, turn it over, increase economic growth and launch the infrastructure bank with an adequate level of capital.”
America’s infrastructure is dangerously decrepit. The trust fund that pays for highways and mass transit is about to be drained of funds. Obama’s modest call for a $300 billion four-year investment, paid for by closing corporate loopholes, was dead on arrival in the Republican Congress.
This opens the way for a little extortion by the corporate lobby. Let us bring back our money tax-free, they suggest, with the requirement we lend 10 percent to fund an infrastructure bank. We’ll invest the money and create jobs, and taxpayers will get seed funding to rebuild the infrastructure. Win-win. Bipartisan legislation to that effect has already been introduced in both houses of Congress.
But unpack the argument. Global corporations are saying they’ve got enough clout to get this package past the Republican obstruction that now blocks investment in infrastructure – and enough clout to block any effort to end deferral and tax them at the same rate as domestic companies. They are then using the gridlock and the crisis to hold taxpayers up.
After the last repatriation holiday, corporations dramatically increased the profits stashed abroad. If they get away with the same scam again, every company with an accountant will find ways to report profits abroad. In that environment, as the Organisation for Economic Co-operation and Development concluded in a report in February 2013, “taxes are only paid by the naïve.” Multinational corporations will dodge hundreds of billions in taxes, with domestic producers, small businesses and Americans left to pick up the tab.
Worse, note the kicker Clinton slipped into the argument. This giveaway would be “a first step toward corporate tax reform.” But a tax holiday wouldn’t make sense if comprehensive tax reform abolishes deferral, as it should.
No, a tax holiday makes sense as a “first step” only if the plan is to move to a so-called “territorial tax system” that would permanently abolish taxes on profits reported abroad. This would essentially turn the rest of the world into a tax haven. Global corporations could use accounting tricks and transfer pricing to report more and more of their profits abroad. GE would continue to pocket billions in profits and pay less in taxes than the corner mom-and-pop store.
And taxpayers get stiffed on the other end, too. If multinationals were to repatriate half of their profits (far more than likely), they would be required to lend the infrastructure bank about $100 billion. Compare that to the $3.6 trillion over five years that the American Society of Civil Engineers estimates would be needed simply to bring our current infrastructure up to decent standards. The modernization we need – in fast trains, a smart electric grid, a world-speed Internet, greater climate resilience – all would cost more.
Next week on May 22, the Campaign for America’s Future will sponsor a one-day summit on “The New Populism.” We’ll look at how the game has been fixed to benefit the few, and the alternatives that would level the playing field.
The stakes are clear. The broad middle class built after World War II was the product of clear public policies. The growth of Gilded Age inequality and the decline of working families since the 1980s is similarly the product of public choices. The privileged and the corporations have mobilized dollars and armies of lobbyists to rig the rules. If Americans want to get it straight, we will have to take back the game.
And that is what makes Bill Clinton’s gambit so telling. In our corrupted politics, money talks big time, so there are no shortage of Democrats and Republicans willing to peddle this snake oil. Yet, at a time of rising populism, when Americans are increasingly aware that the system is rigged against them, voters are looking for leaders who are prepared to challenge business as usual. This time, the big dawg may have trouble peddling the fix – even, I suspect, to his wife, if she’s planning to make a run.