Wednesday, October 13, 2004


I suppose cynicism is the only true defense against the news these days. I heard yesterday on NPR that Congress had passed a huge tax break bill for businesses. It was so bent towards giving business what they wanted that it defined the baristas at Starbucks as "manufacturers." Our Republican Congress was so intent on giving business campaign contributors what they wanted that the bill goes into the definition of what a gourmet chef is and that his efforts to create a sausage defines him as a manufacturer and gives his business access to manufacturing tax breaks.

The sell - publicly at least - was that these tax breaks would be used to help ensure that these companies could begin hiring again. That was yesterday. Today, we get this headline in the Wall Street Journal (subscription):

Tax Windfall May Not Boost
Hiring Despite Claims
Surprised? No... me neither.

So just what will these corporations do with this election year windfall? Do you really need to ask?

Big companies long lobbied for a tax cut on their overseas profit as a way to spur U.S. job growth. But now that it has been granted, much of the windfall won't go toward hiring but for such uses as strengthening balance sheets, buying back shares and making acquisitions.

The one-year break, included in a sweeping tax bill that cleared the Senate and went to the president this week, will allow hundreds of billions of dollars in overseas profit to be brought home by dozens of U.S. companies at a steeply reduced tax rate. By some estimates, U.S. companies have parked as much as $500 billion in profit abroad to avoid taxes back home.
And what about those overseas profits? Repatriating them should provide a revenue benefit to the treasury - one that's badly needed. But will it? Do you really need to ask?

Companies say the repatriated money, which would be taxed at a 5.25% rate instead of 35%, will provide stimulus and better position them for hiring in the long run. Software company Oracle Corp., for instance, likely will use some of the billions it will bring home to help finance its aggressive acquisition strategy. Computer maker Hewlett-Packard Co. says it may devote a substantial portion of the several billion dollars it plans to bring back to paying down debt from its purchase of Compaq Computer Corp. -- a transaction that led to layoffs.


Last week, Treasury Secretary John Snow wrote that an analysis by the Council of Economic Advisers "indicates that the repatriation provision would not produce any substantial economic benefits." Allen Sinai, the Wall Street economist who was one of the bill's biggest backers, says he thinks the bill might create only 50,000 jobs annually for the next few years, far lower than the 500,000 figure that some politicians have invoked while citing his work.
Did you really need to ask?

No comments: