So We’ll Repatriate Foreign Cash and Then Send it Right Back Out in Dividends to Foreign Stock Holders

This tax bill is bad for many reasons and we will suffer its unforeseen (by Republicans) consequences for a long time.  It does the exact opposite of all of the populist promises that Trump made.  The overall problem with it is, besides the fact that we don’t need it at all right now, is that it was cobbled together stupidly so that even provisions that would get bipartisan support are poorly written or poorly thought out. The people who choose simple false dogmas rather than study history, apply math or respect economics, wrote this and rushed it out as a big Christmas gift to their donors, and themselves, while lying to the public that it’ll do anything positive for anybody not in the 1% or for the economy overall.

Another point that makes this horrible tax bill so bloodymindedly bad is that a good portion of that corporate money that has been kept on foreign books just waiting for a tax holiday (Notaxmas) and will be repatriated and taxed at the ultra low rate of 8%, will be turned right back around and sent out to foreign shareholders in dividends.  Foreigners own about $17 trillion of long term securities outstanding in U.S. financial markets.  Republicans have claimed that the windfall of repatriated money will be used by corporations to hire, expand and bring back American jobs.  No actual living CEOs think that’ll happen.

What will happen is that money is put effectively in a revolving door that sends it right back out to shareholders, a massive chunk of which are in Europe, Asia, the Middle East, etc.

Even worse.  Vox notes that the bill actually will incentivize expansion overseas, rather than here.  Firstly, these repatriation holidays tell corporations that it pays to store their cash overseas and wait for a low tax repatriation.  We did it 2004 (and remember how that helped the economy?  I don’t) and now again.  They’ll just start over again building a new hoard.

The US currently has a stupid version of a worldwide system, in which global profits are taxed but not until they’re brought back and spent or invested in the US. That creates a big incentive to misclassify earnings as being earned overseas, and then to not bring them back to the US, since it’d then face a 35 percent tax. Congress’s Joint Committee on Taxation has estimated that US companies have about $2.6 trillion in untaxed earnings overseas.

The Republican tax plan shifts to a territorial system, largely exempting foreign earnings from tax, though it includes a number of complex provisions meant to prevent the kind of evasion that territorial systems encourage.

The tax bill… taxes profits invested in liquid assets like stocks and bonds at 15.5 percent, and profits invested in harder-to-sell assets like real estate and equipment at 8 percent. Both of those rates are far, far below the statutory rate, meaning companies with overseas profits are effectively being rewarded for keeping them abroad.

 

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