Later On

A blog written for those whose interests more or less match mine.

Trump says his tax break will get companies to hire more workers. Companies say it won’t.

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So who would you trust? (Hint: check out the NY Times list of lies Trump has told since becoming president.) For those who read the news, Trump has negative credibility.

Heather Long reports in the Washington Post:

 

American companies such as Apple and Microsoft have huge cash reserves sitting overseas. President Trump keeps saying it’s as much as $5 trillion. But no one else seems to think it’s that high. Most on Wall Street say those overseas reserves total more like $2 trillion to $3 trillion. Whatever the exact figure is, it’s substantial.

Trump wants to bring that money back to the United States to spur jobs and growth, and he’s been aggressively pitching a plan to offer companies a large tax break if they bring all those dollars back to America soon. Under Trump’s proposal, companies would only have to pay a 10 percent tax on money they bring back — a process often called “repatriation” — rather than the usual 35 percent. (Trump offered that 10 percent figure during his campaign. More recent White House documents don’t specify an exact tax rate.)

“We must bring back trillions of dollars in wealth that’s parked overseas and just can’t come back,” Trump said last week in North Dakota during a speech intended to rally support for tax cuts. “We’re going to get it done.”

Trump says middle-class Americans should not fret about giant corporations getting a steep discount on their tax bills. Once that money is on U.S. soil, Trump argues, companies will use it to build new factories and research centers and create more American jobs.

But there are a lot of reasons to be highly skeptical of Trump’s repatriation plan. Chief among them is that U.S. companies have already told the world what they would do if they were granted a cheaper way to bring back trillions from overseas — and it wouldn’t be hiring workers or making more investments in America.

When Bank of America Merrill Lynch surveyed more than 300 top U.S. companies this summer about their plans for Trump’s “tax holiday” on overseas cash, 65 percent said they would bring the money back to the United States and use it to pay down debt. The next most popular plan was to spend the money on stock buybacks — when companies purchase their own stock, driving up the price.

“Companies want to get their money back to buy stock and goose the stock price because their senior executives derive so much of their compensation from the stock prices,” said Edward Kleinbard, a tax law professor at the University of Southern California and former chief of staff for Congress’s nonpartisan Joint Committee on Taxation. “Their motives are completely suspect.”

These actions would make rich executives and shareholders wealthier by boosting the company stock price. They would not deliver a boon to workers — or the economy as a whole — as Trump is promising.

The White House tried this once before, and the results were grim. Trump frequently bashes former president George W. Bush, but this tax holiday for foreign profits is straight out of the Bush playbook. In 2004, Congress and Bush dropped the tax rate on foreign earnings to 5.25 percent for a short window in 2004-05. It resulted in a great payday for CEOs and Wall Street shareholders but did almost nothing to help workers.

Continue reading.

Written by LeisureGuy

13 September 2017 at 10:17 am

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