Editorial: A jobs idea that has already failed.
The MetroWest Daily News
Posted Jun 23, 2011 @ 08:10 AM
Americans are desperate for jobs, and Washington is desperately in need of ideas for creating them. Republicans are consumed with reducing the federal debt, but haven’t bothered to explain how cutting government spending will produce new jobs. Democrats, both in Congress and the White House, are still defending measures taken in 2009 instead of proposing measures with a chance of creating new jobs in 2011.
Into this void has stepped some of America’s largest corporations with a proposal that sounds good, at least on first glance.
Billions of dollars in corporate profits are locked up overseas, advocates for the companies announced in Washington last week. Companies like Google, Pfizer, Apple and Merck either earned the revenue in other countries, or stashed profits in overseas subsidiaries. They haven’t “repatriated” those profits, their spokesmen say, because then they’d have to pay a 35 percent corporate income tax rate on them.
The companies are offering a deal: Declare a one-year tax amnesty, lowering the rate to 5.5 percent, and we’ll bring the money home and invest it in job-creating economic growth. It would amount to a $1 trillion injection of cash into the economy, the companies say, bringing thousands of new jobs.
“For every billion that we invest, that creates 15,000 to 20,000 jobs directly or indirectly,” said Jim Rogers, CEO of Duke Energy, which has $1.3 billion in profits overseas.
There’s one problem with this proposal. It was tried before, just 6 years ago, and didn’t work.
The New York Times reports that the Homeland Investment Act was adopted by Congress in response to the same arguments. Cut taxes on our overseas profits and we’ll create jobs here at home.
But a study by the nonpartisan National Bureau of Economic Research found that 92 percent of the repatriated profits weren’t reinvested at all, but returned to shareholders in the form of dividends and stock purchases.
“Repatriations did not lead to an increase in domestic investment, employment or R&D – even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained,” the NBER concluded.
Pharmaceutical giant Merck, for instance, brought home $15.9 billion in 2005, the Times reports. But far from adding jobs, regulatory filings indicate that Merck cut its U.S. workforce and capital spending in each of the following three years. Instead, the company used the money to buy back stock, pay overdue taxes, settle a Medicare fraud suit and pay billions to consumers who sued over side effects of the now-discontinued painkiller Vioxx.
Perhaps Congress can come up with a way to guarantee tax breaks like this actually deliver the jobs they promise, but the record is not encouraging.
U.S. companies are already sitting on an estimated $2 trillion in cash, and experts of all political stripes have been asking what it would take to get them to put that money to work. Here’s a guess: Cutting their taxes on another $1 trillion won’t be enough.