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What would be the implications of tax free repatriation of corporate profits?
Posted on 5/23/14 at 7:55 am
Posted on 5/23/14 at 7:55 am
Implications from a monetary perspective.
It's my understanding that there is well over a Trillion of already taxed dollars sitting in foreign multinational corporate bank accounts that would like to come home however the US tax law will tax those profits again at a rate 15 to 35% thus preventing those dollars to come home to those corporations based here in the US. Those dollars could come home to benefit the shareholders, employees, capital projects, and at worse US bank liquidity (as deposits). In total the end result of repatriating these corporate profits tax free would be a net stimulus to the economy.
Questions: the reason the US government won't allow for the repatriating of these dollars tax free is due to the fear that the economy might get stimulated in an uncontrolled fashion? That is, the US government is currently enjoying historically low borrowing cost thanks to the Federal Reserves monetary polity of ZIRP/QE and with an influx of new tax free dollars the Federal Reserve could lose control of ZIRP thus increasing the federal government's borrowing costs?
It's my understanding that there is well over a Trillion of already taxed dollars sitting in foreign multinational corporate bank accounts that would like to come home however the US tax law will tax those profits again at a rate 15 to 35% thus preventing those dollars to come home to those corporations based here in the US. Those dollars could come home to benefit the shareholders, employees, capital projects, and at worse US bank liquidity (as deposits). In total the end result of repatriating these corporate profits tax free would be a net stimulus to the economy.
Questions: the reason the US government won't allow for the repatriating of these dollars tax free is due to the fear that the economy might get stimulated in an uncontrolled fashion? That is, the US government is currently enjoying historically low borrowing cost thanks to the Federal Reserves monetary polity of ZIRP/QE and with an influx of new tax free dollars the Federal Reserve could lose control of ZIRP thus increasing the federal government's borrowing costs?
6
Posted on 5/23/14 at 8:26 am to GumboPot
quote:
the reason the US government won't allow for the repatriating of these dollars tax free is due to the fear that the economy might get stimulated in an uncontrolled fashion?
I would say their biggest fear is completely losing their tax base, if they allow repatriation of corporate profits tax free why would a company ever show a profit in the US? They could just show a profit in the lowest taxed jurisdiction then freely move it to the US.
Posted on 5/23/14 at 8:55 am to reb13
quote:
I would say their biggest fear is completely losing their tax base,
How would corporation hide US profits?
Posted on 5/23/14 at 9:21 am to GumboPot
quote:
Questions: the reason the US government won't allow for the repatriating of these dollars tax free is due to the fear that the economy might get stimulated in an uncontrolled fashion?
You are overthinking this.
The US isn't a fan of US companies using overseas subsidiaries to hold income raised in foreign nations. Allowing them to repatriate the profits tax free would be a signal that the US was ok with that policy.
Posted on 5/23/14 at 10:37 am to LSUFanHouston
quote:
You are overthinking this.
Prolly so.
Posted on 5/23/14 at 11:20 am to GumboPot
I am not a Progressive by any stretch of the imagination, but on this issue I think the analysis and argument put forth in the linked article is pretty accurate. LINK / The tax code provisions governing controlled foreign corporations are an open invitation to avoiding taxes by allowing the form of transactions to determine the tax instead of using the economic substance of transactions to determine the tax. With proper structuring taxes can be deferred indefinitely.
Posted on 5/23/14 at 12:23 pm to GumboPot
My understanding is that the U.S. only taxes what has not already been taxed.
Hypothetical:
U.S. tax rate 35%
Mexico tax rate 20%
U.S. corporation with subsidiary in Mexico pays 20% in Mexico, but if it decides to repatriate its earnings, it would owe the additional 15% to U.S. (35%-20%).
Hypothetical:
U.S. tax rate 35%
Mexico tax rate 20%
U.S. corporation with subsidiary in Mexico pays 20% in Mexico, but if it decides to repatriate its earnings, it would owe the additional 15% to U.S. (35%-20%).
Posted on 5/23/14 at 12:43 pm to GumboPot
quote:
How would corporation hide US profits?
Accounting, very good accounting.
Posted on 5/23/14 at 1:28 pm to GumboPot
Apple Beats Purchase May Be With Foreign Dollars
A tax holiday could be useful for stimulus where the taxpayer isn't liable.
A tax holiday could be useful for stimulus where the taxpayer isn't liable.
Posted on 5/28/14 at 7:10 pm to GumboPot
I missed this thread before but can answer the question accurately.
There will be no tax holiday to allow repatriation of foreign earnings. It was down before by GWB because he was an idiot economically speaking.
The result was no measurable economic stimulus at all and an encouragement for more companies to move offshore hoping another administration would be just as dumb as W and allow foranother one.
The corps that repatriated tax free under Bush's plan did not reinvest, expand, or pay out dividends. They simply banked it increasing reserves. The money did nothing. There have been several independent studies as to the effects the first time, all of which conclude there was no measurable stimulus or economic impact. However, more companies did initially move more offshore and some continue to do so and support lobbying efforts to get it done again.
It won't happen again though. The gov saw what happened and they are trying to tighten foreign deferral provisions now.
There will be no tax holiday to allow repatriation of foreign earnings. It was down before by GWB because he was an idiot economically speaking.
The result was no measurable economic stimulus at all and an encouragement for more companies to move offshore hoping another administration would be just as dumb as W and allow foranother one.
The corps that repatriated tax free under Bush's plan did not reinvest, expand, or pay out dividends. They simply banked it increasing reserves. The money did nothing. There have been several independent studies as to the effects the first time, all of which conclude there was no measurable stimulus or economic impact. However, more companies did initially move more offshore and some continue to do so and support lobbying efforts to get it done again.
It won't happen again though. The gov saw what happened and they are trying to tighten foreign deferral provisions now.
Posted on 5/28/14 at 7:12 pm to Tiger n Miami AU83
Fwiw though, it's not a bad question by the OP. I am just familiar with this issue and the W plan and it's failure to acheive any of it's objectives and how it actually hurt domestically instead of helping.
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