NYT on Repatriation Tax Holiday

http://www.futureofcapitalism.com/2011/06/nyt-on-repatriation-tax-holiday

The New York Times has a totally ridiculous front page news article about the effort by American companies to get the government to cut taxes on bringing cash back from overseas. Let's take it from the top.

The Times article begins: "Some of the nation's largest corporations have amassed vast profits outside the country and are pressing Congress and the Obama administration for a tax break to bring the money home."

This isn't news to anyone who has been paying attention; "60 Minutes" did a similar story in March.

The Times article goes on:

Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy...

But that's not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage.

Though the tax break lured them into bringing $312 billion back to the United States, 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.

This money comes from overseas operations and in some cases accounting maneuvers that shift domestic profits to low-tax countries. The study concluded that the program "did not increase domestic investment, employment or research and development."

The NBER study is from June 2009, so it isn't clear exactly how it became front-page news in the Times today.

More subtly, the NBER didn't conduct the study; three NBER-affiliated researchers did. The NBER publishes lots of studies, some of which have conclusions that disagree with each other. If the Times editors don't understand this, imagine taking a line about, say, abortion from a pro-life column by token Times conservative Ross Douthat and describing it as a conclusion of the "nonpartisan New York Times."

Finally, most importantly, and most egregiously, the Times article mischaracterizes the study by omitting a key sentence. The Times makes it sound like the NBER study concludes this tax break is a terrible idea. In fact, the NBER study says, in a line that the 1900-word Times article doesn't include, that while the 2005 tax break "does not appear to have spurred the domestic investment and employment of firms that used the tax holiday to repatriate earnings from abroad, it may still have benefited the U.S. economy in other ways. The tax holiday encouraged U.S. multinationals to repatriate roughly $300 billion of foreign earnings and pay most of these earnings to shareholders. Presumably these shareholders either reinvested these funds or used them for consumption. Either of these activities could have an effect on U.S. growth, investment, and employment." The study even praises the companies for returning the money to shareholders and maximizing shareholder value rather than maximizing managers' return through increasing executive compensation or engaging in "empire-building through acquisitions."

There's almost no recognition in the Times article that America's relatively high corporate tax rate is what is keeping this money offshore to begin with. All there is is a sentence that says, "This money comes from overseas operations and in some cases accounting maneuvers that shift domestic profits to low-tax countries."

The article goes on to refer to "the prospect of profitable corporations getting a break as social programs are being cut." It doesn't seem to get the fact that it doesn't help the social programs any to have the corporate money sitting offshore.

Disclosure: I own some shares of Merck, which is one of the companies attacked in the Times piece.

Thanks to reader-participant-community member-watchdog-content co-creator C. for sending the tip.

by Ira Stoll  |  Jun 20, 2011 at 11:55 am Related Topics:  Press, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list