Consider this article from Bloomberg: Google Joins Apple in Push for Tax Holiday
As a coalition led by Apple Inc. (AAPL), Google Inc. (GOOG), and Cisco Systems Inc. (CSCO) presses for a tax holiday on more than $1 trillion in offshore profits, it is turning to a well-positioned lobbyist: Jeffrey Forbes, once chief of staff to Max Baucus, chairman of the tax-writing Senate Finance Committee.
In short the issue here is that US corporations that have profits at foreign subsidiaries need to pay the US corporate tax rate that is far higher than in many other countries if they wish to repatriate the profits. Foreign taxes are deductible so repatriation from countries with very low tax rates would be hit the hardest.
Looking at some of the arguments, the lobbyist are claiming repatriation of profits would be used for capital expenditure in US and to create jobs. Furthermore they claim it would give the economy the boost that it now requires in order to avoid the recession. And perhaps, the “best” argument: “Our economy needs all the help it can get, and leaving this money in foreign banks when we could bring it home now makes no sense”. If indeed there are hundreds of billions of dollars in European banks, I am not sure how withdrawing all that would make things that much better today given the subtle problems said banks have.
Kudos to Bloomberg for actually presenting some truth and noting that this has been done before and predictably it led to share buybacks and dividends, not capex and jobs.
It is rather ridiculous to claim that the repatriation of profits would lead to job creation aside from some odd Ferrari and diamond purchases. S&P500 companies do not have a shortage of cash to finance capital expenditure in US and many of them can currently issue debt at insanely low rates. Moreover, if they would actually have profitable job creation and capital expenditure opportunities in US, they would be creating those jobs and building that productive capacity right now in order to increase profits. It should be obvious that the lack of any profit opportunities and too high costs in creating jobs in the US is the reason they are not hiring and that is not going to change by giving corporations a tax holiday that has been proven not to work.
However, I am fully convinced that the tax holiday would lead to further off-shoring of all kinds of operations from the US by S&P500 corporations as that is the action that would be rewarded here. This would further stress the competitive environment for small and medium sized businesses that are not able to lobby for sweetheart deals with the government. 35 per cent federal rate plus average 5 per cent state rate for corporate income is definitely not competitive with many OECD countries, but giving large corporations more loopholes is the wrong direction.