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MARKET ROUNDUP
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 Dow:$1.95 Trillion. Trillion with a “T”!
That’s how much money American corporations are holding outside the U.S. It’s an outrageous sum, and it rose by 12 percent in the last year. Companies as diverse as Apple (Weiss Ratings: AAPL, A), General Electric (Weiss Ratings: GE, B+), and Pfizer (Weiss Ratings: PFE, A) are literally swimming in Benjamins.
There’s just one problem: All that dough is parked overseas.
The biggest corporations in this country don’t want to bring it home — to build factories, invest in research and development, hire workers, or pay generous dividends or buy back stock for shareholders — because if they do, they’ll get socked with a mammoth tax bill. After all, the U.S. corporate tax rate is 35 percent, the highest in the developed world.
Cheap interest rates are also fueling the trend. Companies can borrow money at rock-bottom and write off the interest as a business expense, then use that money to buy back stock rather than spend their cash.
But now, there’s movement afoot in Congress to bring those dollars home. Both Democratic Senator Harry Reid of Nevada and Republican Senator Rand Paul of Kentucky are pushing the idea of a tax “holiday” for corporate America.
The idea is to let companies deduct 85 percent of any cash they repatriate to the U.S. from overseas subsidiaries. The tax revenue from the move would help plug a funding deficit at the Highway Trust Fund, ensuring that critical infrastructure projects don’t fall by the wayside in the coming months.
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| There’s movement afoot in Congress to bring corporate dollars that are parked overseas, back to the U.S. |
The fund faces depletion because gas and diesel tax revenue is falling due to the rising fuel efficiency of American cars and trucks. Estimates say Treasury could reap anywhere from $20 billion to $30 billion over the next couple years from such a holiday.
Some objections have already been raised to the idea of a “one off” holiday, like what the U.S. did in 2004. That brought more than $360 billion back into the U.S., but arguably did not boost hiring or investment as much as supporters were hoping.
A one-off holiday could also ultimately cost the government money — as much as $96 billion — in the longer-term period beyond two years. That’s the conclusion of the Joint Committee on Taxation, which assumed that corporations would have to eventually pay taxes at a higher, non-holiday rate anyway.
The Reid-Paul plan tries to get around that by eliminating the tax deductibility of borrowing specifically undertaken to dodge taxes on repatriating overseas cash. That would theoretically boost the “front end” take from a holiday, while largely eliminating the back-end costs.
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“The U.S. corporate tax rate is 35 percent, the highest in the developed world.” |
It’s an interesting approach, to say the least. While full-scale tax reform is obviously a better option — and one many in Congress would prefer — any step that encourages repatriation should be good for investors. It would discourage corporations from leveraging up their balance sheets any more than they already have. And it would increase the amount of money available for investment and shareholder-friendly returns of capital.
But that’s just my opinion. I’m eager to hear yours, too. Should we give corporations a break to bring their overseas dough home? And if so, what should we use the money for? Increased infrastructure spending or to fund broader tax reform?
Would you increase your stock exposure if you knew that companies were going to get a windfall of several hundred billion dollars? Let me know by sounding off in the comment section below.
| OUR READERS SPEAK |
Boy, did my latest piece on student loan relief touch a nerve. Many of you were fighting mad about the massive inflation in college costs, the perceived light workloads of college professors, and the lack of foresight by students and families when borrowing in the first place. Others were angry with the government for making college so expensive in the first place — but also had constructive suggestions for how to get out of this mess.
Reader Bill said: “Why not start by charging students the same interest rates that the Fed charges the banks (less than 1 percent)? Our daughter’s student loans from the government are 6.25 percent, higher than any of her private loans.”
Reader Jim chimed in by saying that “Shouldn’t cost the taxpayer anything as the principal is being repaid. Gov’t has sure fire way to get their money too — can’t bankrupt against the debt and they can garnish tax refunds. This type of instrument deserves a below market rate. String out the principal repayment too like a house — 30 years.”
But Reader Rich believes bankruptcy relief should be on the table for student borrowers. That would enforce lending discipline and allow for a fresh start — just like the bankruptcy code provides for credit card and other debt. His comments:
“Easy fix for the student loan problem. Allow student loans to be included in bankruptcy like any other creditor obligations. Many students would surely go bankrupt. If done correctly, a student would recover in about 3 years with zero debt.
“The Feds would now have to learn (the hard way) to not give loans out to anybody; especially kids who have little chance of paying the money back anyway with their ‘soft’ chosen majors. The cost of University would go down due to basic supply and demand.”
Reader Anne latched on to the rising borrowing/rising tuition problem as well, saying: “No reason for the government to be involved. That’s a relatively new development and it’s not working out well. Colleges used to make financial aid packages to outstanding students. If today they made the loans out of their endowment funds, they’d be a little more cautious about funding students who were unlikely to graduate. And with federal funding out of the picture, the colleges would lower tuition and other fees.”
Again, these are good points all around and I’m glad to see the lively debate.
Add your thoughts below if you’d like.
| OTHER DEVELOPMENTS OF THE DAY |
 Republican House Majority Leader Eric Cantor of Virginia lost in a primary election to Tea Party candidate and economist Dave Brat. The shocking defeat could derail immigration reform, while increasing the political pressure on the Federal Reserve from the Right.
So if you are a millionaire who pays top dollar to fly to exotic locales to enjoy champagne wishes and caviar dreams, you’ll now have the chance to get more free tickets. Because, you know, that’s exactly what you need! The average guy who scrounges his nickels together to fly? Enjoy your free peanuts … because that’s all you get! LOL.
You can let me know what you think by putting your comments at the bottom, allowing you and your fellow readers to learn from each other in this topsy-turvy market.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 50 comments }
The time to help American people is here more than ever before in our country. Average American people are earning less that ever in their paycheck. Unemployed Americans who cannot find good paying jobs is higher than in has been since WW II. We are on the verge of another Boston Tea Party in America. Vets are dying around our country from lack of being able to get inot the VA Hospitals. In the meantime people have received bonuses tha tshould never have been paid. Enough is enough and we got to take better care of all Americans.
Wow, I am so surprised at the comments that students should get a free ride. First of all Personal Responsibility: College loans should not be secured and used to fund a degree plan that lands the graduate in a job that pays minimum wage, or NO job. Students that took out loans should be held accountable and pay back the loan, and not use MY tax money to bail them out. Stop the government backing of loans immediately, and college tuitions would moderate in a hurry.
SECOND: Go back to the condition that students that do not qualify for private banking loans, Work, actually work their way through school. I worked and paid my own way through the university, to get an engineering degree that was Marketable in the marketplace. Students need to wake up and not expect the government to give them a party time in the university to get a degree that is not marketable, and then, oh dang, I can’t pay it back for 20 years. Grow up and assume responsibility for your actions!
Thirdly, students should be encouraged to go to a trade school and learn a trade, we all can’t be engineers and managers!
The above remark about trade schools is right on. to today it’s computer science. We have two such (trade schools) in San Francisco teaching 6 month courses on basic skills on computer science with these students getting placed in as soon as 6 months with jobs starting at 75,000 and up! Further why don’t we do a flat tax, I’d really like to hear yours and others perspective on that. What is the size of the underground economy in the US? Some say a half a billion. Wouldn’t a flat taxt bring sonme of that money in.
Ed, Nice try, but a flat tax means that Warren Buffett and the Koch Brothers eat the same food I do, gas their cars as I do, wear the same Jeans as I do, so we would all be paying the same flat tax. What an unbalanced plan that is.
My Fair and Simple TAx Plan is to tax ALL income from ALL sources, and allow only one exemption of $20,000 per IRS filer. Period. One tax rate for everybody of 20%.
(example: A couple earning $100,000 gross, filing jointly would pay 20% tax on $60,000 taxable Income = $12,000 tax.) A single filer earning under $20,000 would pay no tax.
The IRS Form 1040 would be postcard size. Most people living on Social Security would pay no tax. Poverty would be reduced.
Business Income Taxes could also be simplified, paid on Gross Income rather than Net Income as is now the practice. Gross Income would be redefined as Gross Sales less Purchases, Labor, and Research, (expenses critical for a healthy economy) , One common tax rate of 10% would be applied against this Gross Income if all the income was earned in the U.S. with U.S. labor, and U.S. component purchases. A higher tax rate would apply if those U.S. conditions are not met.
So throw away those thousands of tax code pages, simplify life, and eliminate the chiselers who work the system.
Ed your “Flat tax” solution has already been created. It’s called the Fair Tax. Look it up at fairtax.org.
CORPORATE TAX HOLIDAY
To start with, the Maximum Corporate Tax Rate ( few actually pay anywhere near the max) is theoretically 35%. Often, they pay half or less of this maximum tax rate. But that is just semantics and perception, right? The real issues here are tax policy and the Federal government’s need for ever more revenue to fund ever higher spending and debt formation. That means a tax increase for someone, in one form or another. That is the reality lost in the debate over one-off tax holidays to pay higher dividends and more stock buybacks in lieu of taking out more low interest debt.
Unfortunately, the political consensus necessary for any large Federal Tax Code overhauls such as occurred in the Reagan years in 1986 does not currently exist and neither does the necessary presidential leadership. Therefore, Tax reform or any kind of domestic policy reform will probably have to wait until at least 2017-2018 at the soonest. So, don’t hold your breath.
Corporate Tax Holiday
It is just so unbelievable that corporations like GE gross billions of dollars and yet pay no income taxes at all. That sounds like tax evasion to me. All of that money going overseas and none staying in the US to benefit all of us taxpayers. The average american can see how outrageous it is not to pay a dime in taxes. Why don’t the politicians see it that way. Are they all blind or are their pockets being lined with $?
What corporation actually pays the 35% rate. I read that by the time they deduct all the expenses etc the actual rate is much lower.
Why do you and many others have a “must spend it” mentality? That’s why companies are doing what they’re doing to operate efficiently and stay alive. Try thinking: repatriate the country, buy it back, by paying down the debts to foreign countries. No need for more reforms while out of control.
I hear about how much debt the USA is in and the trouble that money printing and bond buying could eventually cause, but on the positive side, I hear about all the money being made with oil and natural gas being pulled out the the USA. I am wondering dollar wise if the benefits from the oil and gas production could out way the negatives from the US debt and money printing over the years?
Get rid of corporated taxes.Corporations,like houses and automobiles,don’t pay taxes.Only people do.Give us a flat tax,15% Federal and max 3% state and get rid of all deductions,sales taxes,corporate tax.
Just wanted to say how much I enjoy the. M&M reports. Brief and
To the point.
How about the Govt. charging no corporate tax to Industries that have more than an established number of employees (say 1500) conditional on them repatriating all of their funds and manufacturing to the U.S. (Canada). That would certainly be worth the effort to repatriate, and many companies who have under the established limit would strive to hire more employees to meet the tax-free status. It certainly would result in more taxes through the growth in the overall economy and would take care of the unemployment problem.
I have been saying this for 4 years. I think it should be 10%. This could be a bigger stimulus than any of the QEs.
The Fed should lower the corporate tax rate to 15 percent effective July 1 2014. Will the Dems ever get it?
I think student loan costs could start to be controlled if there was a limit on the cost of textbooks. My son spent $800 for one semester’s worth of textbooks. These books, if they weren’t textbooks, would cost maybe $100 at most. The books are changed every year or two so that they can’t be reused and the buyback prices are abysmal. The changes usually consist of changing the order of the problems and a few pictures, just to make students buy new books. If there was just a cap on the prices that could be charged for the books it would eliminate some of the need for student loans, at least it would be a start.
The idea that Harry Reid and Rand Paul are doing something together … gives me cause to wonder.
All student loans should require a 1 to 2 year commitment to the Peace Corp. Or the armed forces .
STUDENT LOANS
The government should review the student loans that are not repaid and score the schools and degrees that have the lowest 10 percent repayment. Schools with low repayment rate should not be approved and the student advised (by government) to seek another school. Degree selection with limited job opportunities should also be identified to student with data to support the degree or school non repayment information.
Schools could then prompt students to keep current on loans for fear of student enrollment losses. and students would be directed from useless degrees.
Our foolish, counterproductive 35% corporate tax rate is the highest of any major economy in the.world. Harry Reidiculous should just find some common sense and cut it to 25% or less, and then there will be such super economic growth that a new bonanza in taxes collected will be more than enough to fix the infrastructure many times over.
I must correct your statement about the US having the highest corporate tax rate in the world, I have friends in Spain, they moved there from Germany, had a thriving business in Germany and paid 50% in corporate taxes. If the Government would cut the corporate tax to 25% THE FIRST YEAR, and 30% the second year then I think our economy could benefit. But of course if Government would cut war expenses that would help too.
Re: Student loans. Students should not get a free ride on my money, I have a daughter who went to college and worked all through College to pay for her loan, I didn’t spend a dime on her, I was a single mother. Also the Government should implement a nationwide trading school after High School, like they do in Germany and Austria, if someone wants to become a carpenter they have to go 3 years to a trading school to learn the trade from the ground up, half days to school and half days on the job training. That would eliminate a lot of problems for the young people.
Amen, Lisa
Regarding the proposed “tax holiday”.
The United States provides stability, customers that can buy goods, and a decent infrastructure. Corporations benefit from this. Corporations should pay their fair share of taxes to support our society. If they don’t want to contribute, then they can do business outside the US. We do not owe them a free ride.
The bank bailout, followed by the foreclosure blood bath, is illustrative of the misapplication of our priorities.
Similarly, the Warren Buffett/secretary tax rates.
We have welfare for the rich, but do not want to provide welfare for the poor.
Sigh
Linda Wenning
Low, low cost government student loans should be available for all four year college kids studying useful majors which are in short supply in our country. Nobody lends money to applicants who have no hope of repaying. All outstanding student loans should be refinanced at the same interest rate as the Federal Reserve is lending to corporations and banks.
Community Colleges should be publicly funded for those studying nursing, plumbing, electricity, auto mechanics, carpentry, farming, construction, computer hardware and software programming, lawn care, teacher assistants, mold making, metal and plastics forming, culinary arts, etc, skills that will be put to work quickly, right in your home town, earning good pay, and providing healthy tax payments to support the next class of students.
Student loans should have a twelve month grace period following graduation before repayments start, to give time to get acclimated to the working world, with a steady income stream.
Also, if hard times befall a holder of a student loan, they should be allowed a “payment vacation” rather than being forced into bankruptcy.
That’s just what we need. A student loan bailout with tax dollars. Party rock is in the house tonight. Get your 4 year degree in phys ed, literature, or communications at a party school with a big football stadium. If we are all paying for it, let’s make it worth our while.
On student loans, I didn’t see any coment on the text publishers and the schools in colusion when the publishers move a picture to a new page, call it a new edition making the old edition no good and the school agreeing and requiring the new to be sold to the students and the old version dropped.
Mike- let me say it this way:
1. It is a friggin’ miracle that Harry Reid and Rand Paul are willing to collaborate on anything. That alone makes this a good idea!
2. Let them repatriate the money with minimal taxation, but attach strings, such as requiring capital investment such as construction, new equipment purchases, etc. DO NOT allow them to bring it back and put it in the bank.
3. To that last point, I’m still burning that we bailed out the banks with $800 billion and continue to print money, only to have it sit on banks balance sheet. There is no velocity to the funds at all.
So however it’s crafted, if you can force the repatriated money to stimulate the REAL economy, I’d be all over it!
Caine
Just a few point about the idea of a “tax holidayâ€.
The Tax code is already an unreadable mish-mash of accelerated depreciation schedules, accumulated losses, special accounting gimmicks and other loopholes that make the average corporate rate of actual taxes paid something under 10% rather than the 35% headline rate. So, for the tax holiday to be of any value at all, it would seem logical to assume that the holiday rate would have to be below the 10% real world rate.
The tax code needs another special gimmick such as this “tax holiday†to be incorporated into it like it needs another couple of dozen special schedules plus a couple of hundred pages of code to help “clarify†things.
I am under no illusions: this thing will be written into law for the same reason than Wille Sutton robbed banks. Because corporate coffers “is where the money isâ€.
When this becomes law it will be one more step in the ongoing process of turning income tax into a wage tax.
Here is a thought: How about coming up with a simplified tax code and a realistic tax rate, then including a provision that money not repatriated by a certain date will be subject to a tax increase? I would like to meet the politician who has the guts float that as a trial balloon and see who jumps on board.
Of course the question you asked was “who would increase exposure to stocks if there were a one time tax windfall headed in the direction of corporationsâ€. I can only answer with a question: Would that not depend on whether the repatriated money was safer or more productive after the fact, for the corporations involved?
Not sure the US can solve its revenue problem by picking on a small country liker Ireland which has the most open and transparent tax system in the modern world. I think US politicians would be better employed doing the more difficult research and looking at countries which have high nominal tax rates but have complex tax write down schemes which can facilitate tax avoidance.
You might like to give some history of when & by whom our own Gov. drove U.S. Corps. overseas.
It would shift the onous of the “greedy Corps”. back where it belongs!
It is time that we got back to basics. We need to start bringing back the millions of manufacturing jobs that have left the USA. These jobs pay well compared to the service sector jobs and they significantly add to our tax base. Our middle class was built on these jobs. We need to reform our tax code. We also need to start treating other countries the same way they treat us. If they have punitive fees and taxes in place making our exports uncompetitive, we need to reciprocate. Go to any store – hardware, department store, even grocery store, Try to find something actually MADE IN USA. We need to fix this.
They should eliminate the corporate tax altogether. Only tax individuals.
Would I increase my exposure to stocks?? Sure as long as I were confident that the money repatriated was being used to grow the company and help in improving the economy and employment situation. I would imagine that this would be more beneficial than the QE forever scheme that is creating an artificial stock market growth. Instead of a tax holiday trash the whole tax code. At 73,900+ pages it’s no surprise why not only corporations but private individuals (that have the means to do so) as well park money outside the country. Who knows it could result result in some real and lasting stimulus instead of the half baked tripe that is flowing out of the White House and Capital Hill.
It is unfortunate our country has come to such a situation. This mess did not start recently, but has been on going for many years. I am now reading “America the Beautiful” by Ben Carson, MD and with Candy Carson. It might shed some light on our plight. It is true that every great civilization has reached it’s apex and then plunged to it’s extinction. We appear to be doing the same. So through the “bums” out of the government, redo the tax code and CUT the size of government.
I have no interest in increasing my exposure to stocks at this point. I’ll wait for a little better risk/reward ratio. Regarding repatriated funds, why would a corporation spend money hiring people if demand for their product has not increased? Corporations are not philanthropists, from my observations they are logical self preservation entities. Why do you think they have accumulated the mountain of cash in the first place? If they could put it to work to increase profits don’t you think they would have? I think it is just a simple lack of demand issue because the consumer has lost buying power due to the Fed’s systematic destruction of the dollar for the last hundred years. The official inflation rate is a joke!
In your report you said that the last time these co’s received something like this, it didn’t create the jobs this country needs so badly. And that is because they are still “outsourcing” every job they can to other countries. One of my friends just lost her job in a health ins. co. that was “outsourced”.
That is how they made so much money in the first place. By sending millions of jobs overseas to countries that, in many cases are still our enemies. That money may eventually be confiscated by China, Viet Nam and some of the radical Muslim countries, to name a few. The factories may be “Nationalized”.(Remember history?)
This money was obtained by the sweat and blood of slave labor, political prisoners, and sweat shops. So now, lets reward them for what they have(and are doing!) done.
What they are doing is economic extortion!
Two mentions in this article are typical of the spending wastes of politicians. One, the emphasis on ” what are we going to spend the “saved money ” on, and two, the idea that the solution to the REASON that companies are building their case reserves overseas ought to be ignored and some sort of band aid for the problem is the answer.
The problem to building and maintaining transportation infrastructure ought to come out of the pockets of the folks who USE these things (i.e. TOLLS) Sure, the gas tax used for this is proper but WAY to general in handling where the highest wear and tear of such things occur. Those areas need to have tolls on their roads.
There is absolutely no good reason that this country should have the highest corp. tax of all other countries. other than political greed.
Lastly, politicians like to think that THEY create jobs and ,in a way, they do. But LASTING jobs are created not by government meddling but by public demand for things and services. And these are the types of jobs that can only be efficiently managed by entrepreneur’s in private industry. The government (politicians) are incapable of running ANYTHING efficiently because they have no dog in the hunt AND they are ALWAYS making commitments for money which is not their in the first place.
15% is too low. I would tax overseas money brought home at least 20 to 25%.
I would only increase my investments if I see a substantial trickle down effect on our economy. We must spread the wealth to really boost our economy.
Personally, I look at taxes as a negative reinforcer. The more taxes the less incentive to earn money. It works that way for individuals as well as corporations.
The answer is a flat tax , both for people and corporations. If everyone was taxed, with NO exceptions (even the poor) at a nominal rate of 15% of all goods purchased, I think we would see major cuts to our Federal Budget. Probably personal budgets too if one is not a big spender.
Don’t weep for the “poor”. I have been incredibly poor and 15% wouldn’t have killed me on my purchases…mostly food and used clothing from second hand shops.
I would be in favor of this plan if the ordinary individual taxpayer was also granted some tax relief. Here’s an idea. I still have thousands of dollars in stock losses from the the economic debacle of 08-09 that I have been slowly writing off over the last 6-7 yrs. How about letting individuals have a one time capital loss holiday on the tax bill and allow tax losses of any amount this yr. or at least the same percentage as the businesses and corporations would get under this plan. Seems fair to me. Banks and brokerages should also have to pay a penalty for money they park at the federal reserve instead of putting into the economy just like what was recently approved by the Euro Zone. Let’s give some relief to all!
costs of college keeping going up–has anyone thought about raising the number of credit hours per semester a student takes– some of the majors could handle 19-21 hours per semester and the student gets out sooner. on the cost side credit hours would be a push but the room and board costs would be a lot less because of less time on or off campus.
Allowing US corporations to repatriate profits from overseas makes sense on a number of fronts. Not only can the money be used for projects in the USA, it would encourage our corporations, such as Cisco, IBM and Pfizer to create jobs at home and discourage attempts to domicile abroad to escape our onerous taxes.
I would like corporations to repatriate their money. If a tax “holiday” is needed, give them one. However I really think they should pay taxes on their profits even if left overseas. That way they will put the money where it is most useful and the govt will still get what it thinks is its share.
When I graduated from high school in 1963 my parents weren’t willing to help me through school. I did get a bit of state scholarship and worked at the Jr. college to get through through those two years.
It took me 8 years to finally get my degree and I did wind up with a bit of debt. After joining the military I learned about CLEP tests. I couldn’t believe that nobody ever told me about them. I paid my debt within three years. If one can’t pay the education debt down within a few years like a car loan then get your education another way!
Learn to self-study and take the CLEP tests. You can get through about two years of college. That beats going to school, part time and full time, and working for 8 years.
My father taught me many, many years ago that corporations do not PAY taxes, they COLLECT taxes. From whom? Why, from their customers, of course, a.k.a. consumers or end-users. They adjust prices for their products to ensure that their payments to government do not damage their profitability. All this boo-hooing over the poor, overtaxed corporations is nonsense. Likewise, when a company gets caught in some naughty deed by government regulators and has to pay a fine, do you think the penalty comes from the paychecks of the CEO or other bigwigs?!? Ha! You and I, John and Jane American Consumer, are the ones paying.
If the bond markets fall and no one is around, does it make a sound?
Taxing wealthy corporations on only 15% of their foreign profits makes sense only if individual taxpayers are also taxed on only 15% of their income.
If corporations are considered people by recent judicial rulings, then all people should have the benefit of a tax holiday not just corporations. I would like the money in my IRA to be repatriated to me with a tax holiday so I can create some jobs in this country. Why should corporations get special treatment here? The last tax holiday implemented mostly went to corporate stock buybacks which only benefited corporate CEO stock options. The only jobs created were in China. –disgusted
I agree SF. You have to be a large corporation like a bank, an auto giant, etc. to get monetary support…