Tuesday, December 18, 2012

Want Stimulus? Repatriate Foreign Profits.

Currently, American corporations have more than $1.5 trillion in profits sitting in foreign accounts. That money is being left there because it would be taxed at a rate of 35% if it were to be repatriated to this country.  But, also understand that those profits have already been taxed once by the country of origin.   Further, the United States is the only country, in the industrialized world, that still double taxes foreign profits; making U.S. companies less competitive in the world marketplace.

The Democrats have refused to budge on either lowering or eliminating the taxation of this money.  This is just plain stupid.  As a result, we get nothing in return.  We get no taxes and that money is never put to work in helping our economy grow.  In fact, that money is very likely being used to help other country's economies.  

What the Democrats are afraid of is that, if this money were to be returned to the U.S., untaxed, companies would redistribute these funds in the form of dividends; thus lining the pockets of  -- once again -- the very rich 2% of us.  But, this is a lie. In fact, under normal economic circumstances, more than 60% of Americans are usually invested in the stock market (see Gallup data referenced below). Further, even if that money were only to be distributed as dividends, it would be taxed at the current dividend tax rate of 15%; and, that is 15% more than we're getting with that money sitting overseas. Make no mistake about it, that 15% dividend taxation means we could reduce our federal debt by $300 billion dollars.  That's twice the amount of revenues that Obama is proposing with his tax increases on the rich. 

More importantly, this money would represent a cash infusion of at least a trillion dollars into the economy without having to borrow a single cent from China.  This truly would be stimulus without debt.  But, the Democrats would prefer to use government funding so they can pick and choose who gets the money.  Usually, their politically-connected buddies.

I really think that the repatriation of foreign profits should be on the table as part of the fiscal cliff negotiations.  Maybe as a bargaining chip in allowing some tax increases on the rich.

--- The Big Picture: The Top 10 Companies (out of the S&P 500) With Untaxed Foreign Profits (representing $408 billion that is left sitting in foreign countries): http://www.ritholtz.com/blog/2011/04/what-us-companies-have-the-most-untaxed-foreign-income/

--- Gallup: Americans Invested In The Stock Market: http://www.gallup.com/poll/147206/stock-market-investments-lowest-1999.aspx

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