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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

The not so innocent fraud of repatriation

Posted by WARREN MOSLER on May 4th, 2012

Repatriation made it to Romney’s platform:

– Allow for a tax holiday for repatriated corporate profits held overseas

So I’ve been asking this question for as long as I can remember:

‘Name one company holding off on investment because it has some of its excess cash in a Citibank London account vs a Citibank New York account?’

Corporate America is currently ‘cash rich’ with all the funding they could possibly want for investment. If investment is low, it’s because they don’t see sufficiently profitable investments, and not because of lack of funding.

The funds have piled up in these ‘offshore’ accounts for one reason- the income isn’t taxed by the US until it is ‘moved’ to the ‘US books’ of the corporations. So these corporations could have either made their profits from offshore operations and paid their US taxes immediately, or made their profits and deferred taxation by leaving those profits in offshore accounts.

I understand the argument that corporations should not be taxed in the first place, as corporate taxes are all passed through to consumers, directly or indirectly.

I don’t understand the argument that repatriation somehow ‘creates jobs’ and helps the economy.

I do understand the desire for corporations to support candidates on this issue, to the point of misrepresenting the ‘job creation’ aspect.

In fact, there’s new proposal coming out of Puerto Rico that appears to be a ‘back door’ route to unlimited repatriation for US corporations.

15 Responses to “The not so innocent fraud of repatriation”

  1. Neil Wilson Says:

    “I understand the argument that corporations should not be taxed in the first place, as corporate taxes are all passed through to consumers, directly or indirectly.”

    Do you have a view on the appropriate tax point in the circulation?

    Or is it different ones depending upon whether the tax is there to manage aggregate demand, redistribute wealth, or deal with externalities.

    Reply

  2. Jonf Says:

    Warren, what is your view on taxes on dividends and cap gains, as well as corp tax?

    Reply

    WARREN MOSLER Reply:

    as per soft currency economics, my clean sheet of paper view is there should only be transactions taxes on transactions you don’t want to happen.
    that includes labor, so no income taxes or corporate taxes makes sense to me.

    the problem is some of those taxes are meant to offset effects of other institutional structure which needs to be addressed at the same time.

    Reply

  3. Erik V Says:

    Maybe Romney’s arguement about this “creating jobs” is wrong, but a one time big repatriation could still lead a once time surge in dividends and buybacks, which would still be a boost to income. Nothing great, but better than nothing, no reason not to support it.

    Reply

    WARREN MOSLER Reply:

    it’s a boost to cash flow. the corporation has already booked the income, etc. which is already reflected in share prices

    Reply

    Erik V Reply:

    You’re right I should have said CF not income, but the point remains. The cash moves from foreign accounts of corporations to domestic accounts of households.

    Reply

    WARREN MOSLER Reply:

    it moves from foreign accounts of corps to domestic accounts of corps to join the multi $trillion already in domestic corp accounts

  4. roger erickson Says:

    It’s all because our US Treasury is so desperate to “get” its hands on more $US. :(

    We’re running out of ‘em, you know.

    Reply

  5. walter Says:

    In general about this repatriation phenomenon.
    We heard about it too when the JPY strengthened and usd/jpy went down after the earthquake / tsunami in Japan in 2011.
    We regularly hear it as explanation for the eur/usd levels still over 1.30. Although most admit that that can only be temporarily the case. Especially euro zone banks withdrawing from emerging mkts.

    Do you believe that repatriation was supporting the jpy last year and also now again with the euro?

    Reply

    Tom Hickey Reply:

    @walter,

    Capital flows to where the best opportunities are. Taxes may be a factor, but they are seldom the decisive factor.

    Reply

    WARREN MOSLER Reply:

    recognizing the limits to the term ‘capital flows’

    Reply

    WARREN MOSLER Reply:

    that’s a ‘different kind’ of repatriation. that was presumably selling dollar holdings for yen holding to cover yen expenses.

    vs shifting dollars from offshore accounts to onshore accounts

    Reply

  6. Ivan Says:

    New TV commercial for Obama in Florida. I paraphrase: “While President Obama was creating clean energy jobs all across America, Mitt Romney sent jobs to India and China. Maybe that explains why he has a Swiss Bank Account.”

    I don’t care what Romney says. The outright lies and fraud that come from Obama have reached an all new low for an American president. Not to mention he now crucifies private citizens who donate to Romney’s campaign and implies they’re criminals.

    Reply

    WARREN MOSLER Reply:

    it’s only going to get worse, from both sides.
    their philosophy is something along the lines of no one ever lost money underestimating the american public or something like that?

    Reply

    ESM Reply:

    @WARREN MOSLER,

    Well, they’re really only competing for the 10% of the electorate who are genuinely undecided, and I imagine most of these people do not pay much attention to policy and only absorb information in sound bites here and there. Not sure if these kinds of ads actually have an effect, but some professional political consultants apparently do. Either that, or it is not the American undecided who is being played for the fool, but rather the politican who paid for the ad.

    @Ivan:

    I agree that Obama is despicable. His cynicism and ruthless ambition to win a 2nd term certainly rivals, and possibly exceeds, Bill Clinton’s. That being said, presidential campaigns just aren’t as interesting as they used to be.

    Reply

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