St. Patrick’s Day may be behind us, but plenty of U.S. corporations are still helping themselves to a “Double Irish.” Or a “Dutch Sandwich,” for that matter.
No, we’re not talking about drinks or delicacies from these European countries. We’re actually talking about complex accounting gimmicks that U.S.-based corporations use to shift foreign profits into accounts in Ireland, the Netherlands and Bermuda to avoid U.S. corporate taxes. Companies use other loopholes to shift income earned here to subsidiaries abroad. These practices cost the federal treasury as much as $90 billion a year.
St. Patrick’s Day may be behind us, but plenty of U.S. corporations are still helping themselves to a “Double Irish.” Or a “Dutch Sandwich,” for that matter.
No, we’re not talking about drinks or delicacies from these European countries. We’re actually talking about complex accounting gimmicks that U.S.-based corporations use to shift foreign profits into accounts in Ireland, the Netherlands and Bermuda to avoid U.S. corporate taxes. Companies use other loopholes to shift income earned here to subsidiaries abroad. These practices cost the federal treasury as much as $90 billion a year.
On a St. Patrick’s Day edition of “Fresh Air” on WHYY, Dave Davies talks with Bloomberg reporter Jesse Drucker who has written a great deal about corporate tax-dodging. You can read highlights or listen to the full 20-minute interview here. You can also read a full transcript of the interview here.
One particularly interesting takeaway: Some corporations want the U.S. government to approve a “tax holiday” to allow them to bring back profits sheltered overseas. As Dave Davies notes, some argue this “would be in effect a free, non-government-sponsored stimulus plan.”
It wouldn’t be the first time that has happened. In 2004, Congress approved a one-time reduced tax rate of 5.25% (down from 35%) to encourage companies to bring offshore profits back home. So how well did that work out for the economy? Jesse Drucker explains:
Companies brought back about $312 billion that qualified for the break, and, you know, there’s a fair amount of academic literature that shows that very little job creation investment went on as a result of that. And in fact, most of that money was used to buy back stock.
When Dave Davies pressed him later on about whether a tax holiday would help spur the current economy forward, Mr. Drucker had this to say:
I think there are two important things to say about that. Number one is that companies, as we speak, according to the most recent data from the Federal Reserve, are sitting on a record pile of cash: $1.9 trillion. So to the degree the economy is challenged right now, it’s not because of lack of cash at the disposal of companies.
I think the second thing is that in 2004 … the break was in ’04, but the money came back in ’05. There’s a fair amount of academic research on what happened. And the result is that there was very little hiring and very little investment that went on as a result of the $300-some-odd billion that came back the last time. Most of that money seemed to go to buy back stock.
You know, … one the most interesting examples of this was Hewlett-Packard, which in 2005 under the tax holiday brought back $14.5 billion and that same year announced it was laying off over 14,000 people.
So … both the evidence of the last time and the reality of how much cash companies are sitting on right here in the U.S. would seem to raise serious questions about how stimulative that would be.