The Persistent Myth About Cash 'Stranded' Overseas

Real Clear Markets ^ | January 26, 2016 | John Tamny

[expat_panama]

For basic background, many American corporations have offices, subsidiaries and sales in foreign countries. The difference for U.S. companies is that while their foreign competitors are generally only required to pay local/country taxes on their foreign earnings, U.S. corporations not only pay the local/country tax, but they also face a U.S. tax on foreign earnings they bring back to the United States.

[snip]

With regard to foreign earnings, American tax authorities add insult to already serious injury. While U.S. companies are already paying foreign corporate taxes on their earnings, they similarly face a U.S. tax if and when they return those earnings to the United States. In a normal world this tax wouldn't exist. Again, taxes have already been paid overseas, not to mention paid by the individuals whose savings make company creation and expansion possible in the first place.

[snip]

For one, U.S. companies have overseas operations for a reason. They see opportunity there. And if there are profits being earned in foreign lands, it's folly to automatically assume that absent repatriation taxes those profits are going to be immediately brought back to the U.S. for investment in American economic endeavor. Profits have a tendency to beget more investment,

[snip]

Second, companies can't just invest for the sake of investment. They have both shareholders and board members to please. No matter the abundant foreign earnings of U.S. corporations, they can only repatriate them for stateside investment insofar as projected returns stateside exceed what they could realistically earn outside of the U.S. Ok, and as evidenced by somewhat subdued U.S. economic growth throughout the 2000s, opportunities in the United States haven't been as great as they were in the 1980s and 1990s.

[snip]

Corporations never sit on cash. If they don't have an immediate use for it they are banking it. If so, another corporation or individual is accessing what the first corporation doesn't have an immediate use for. Despite what we're told, there aren't trillions of corporate profits sitting idle somewhere. Capital is always in motion.

[snip]

It's about relatively lousy U.S. economic policy overall. If fixed, as in if the simple tax, regulatory, monetary and trade barriers to production are removed, investment in the U.S. will soar. This will be true no matter a tax on repatriated profits that has never been a barrier to investment in the first place.

[expat_panama]

Great article but long read. Too many of us are on the way to work so I cut it short.

This thread will probably bring out Obama's trolls here to spout their evil unpatriotic capitalist exploiter cr@p, and the fact that there's absolutely no hard evidence to back it up wont deter this old 'corps-sitting-on-offshore-cash' from continuing.

[An.American.Expatriate]

cry me a freakin’ river -I have to pay taxes on my foreign earned and taxed income whether I bring it into the US or not.

Fix THAT, then fix the other ....

[alloysteel]

If it is just going to be taxed without any tangible gain for the corporations involved. and the foreign counterparts are not subject to this double taxation, then there is no incentive to bring the earnings back to the US. Make it there, invest it there, and this nation is the poorer for this myopic intransigence on the part of the Federal government.

“Grasping” is the adjective that comes to mind.

[expat_panama]

Good morning everyone!  For the year-to-date the S&P's down 8.2% and the NASDAQ's off 9.8%.  Yesterday saw a 1.6% drop in each but it ain't a new low --it was in falling (albeit average) volume.   Caution: futures traders see more falling today (-1.63%) while they got metals going up +0.66% as gold/silver climb to $1,1113.23/$14.35. 

Seems I got the dates wrong yesterday and it's Case-Shiller 20-city Index, FHFA Housing Price, and Consumer Confidence this morning.

I need a proof reader.

All aboard for the Gloom'n'doom Express (hey, that's a bullish sign isn't it?):

• Global Stocks Sink Amid China 'Doom' Fears NBCNews.com - 47 minutes ago Global stock markets sank Tuesday, led by a plunge in the Shanghai index, after a renewed slump in the price of oil kept investors on edge about the world economy.
• Oil falls, wavers near $30 a barrel with traders gloomy about oversupply MarketWatch - 7 hours ago Crude-oil futures slumped Tuesday, extending a selloff from the previous session, on continuing concerns about oversupply. Prices dropped below $30 a barrel in early trading, then climbed back above that level yet stayed in the red.
• Here We Go Again … IRS Destroys Another Hard Drive The Internal Revenue Service appears to have violated a court order once again requiring the preservation of evidence needed by investigators looking into questionable practices at the agency. In a case ... The Fiscal Times
• Are the Markets Heading for a Perfect Storm? Jan. 25 -- UBS U.S. Equity and Derivatives Strategist Julian Emanuel discusses his outlook for the markets. He speaks on "Bloomberg ‹GO›." Bloomberg Video

[reed13k]

“Corporations never sit on cash”....tell that to Apple, sheesh corporatations are sitting on a ton of cash right now.

I could understand if we wanted to apply a differential tax i.e. U.S. is 37%, some country is 25% so to bring it back is a 12% tax. Not saying I support it just I’d understand it.

My income gets treated this way if I work in different counties in the Cleveland area (RITA) and if you work between states depending on your state of residence - some states are 3 days, some are just 1 (I call this the NBA/NFL rule). Why should corporations be different than personal income.

[expat_panama]

...cry me a freakin’ river -I have to pay taxes...

Right,  Always seems that when some guy's got a cold he wants everyone else in the world to have to sneeze too.

[expat_panama]

“Grasping” is the adjective that comes to mind.

We usually hear it justified when the left whines that the rich are 'hoarding' their gains in foreign banks.

[EQAndyBuzz]

If the policy didn’t exist in the first place, there would be no need to move corporate operations overseas. I don’t think it is bringing the money back so much as bringing operations back.

[Lou L]

The whole premise of repatriating profits rests on the idea that we, whether as individuals or businesses, must constantly feed the government pig with whatever spare change we’ve found. It also suggests that if there weren’t so many “freeloaders” in the system, that government revenues would be satisfied—that all our programs could be funded, all our needs met, and our poor wouldn’t be sleeping in the streets.

[expat_panama]

Why should corporations be different than personal income.

We hear this 'tax the rich' idiocy from the mindless left all the time  --from the Hillary to Trump-- but what the crowd won't admit is the fact that-

1. Corporations already pay income taxes.  And import taxes.  And matls purchase taxes.  And payroll taxes. 
2. We're really not talking about taxing corporations, our taxes are to be paid by corp owners who pay cap gains taxes, dividend/interest taxes, and their income taxes.
3. Tax payments are big-time only when investments pay off; when there are losses there's no gov't reimbursement.
4. Most American wage earners are employed by these evil corporations, kill the corp owners and you kill everyone else's jobs.

[expat_panama]

...move corporate operations overseas...

Our 'grasping left' may call it unpatriotic, but what we're really looking at is folks fleeing for their lives from an insane mob.

 

[BfloGuy]

sheesh corporatations are sitting on a ton of cash right now

Couldn't be bothered to read the article, huh?

Corporations [or individuals] don't "sit" on their cash. They either invest it or bank it. In either case, it's being used by someone.

[PeterPrinciple]

I am willing to be corrected. US taxes are due but the tax paid to foreign countries is a credit toward US taxes?

[expat_panama]

Golly, I can figure out a lot of things but taxes ain’t one of ‘em. My bet is if you asked that question to a tax specialist he’d say “it depends...”. 8P

[An.American.Expatriate]

nice selective editing to leave out the source and taxation status. I guess I should have known that there would be zero understanding of the underlying concepts.

[Titus-Maximus]

John Tammy - what earnings rate do corporations receive from banking it? Two percent from Treasuries. That is not cutting it.

Our tax code is burdensome and many of these companies have to accelerate losses to bring that cash back home. They play games with the code. They structure transactions that reduce their taxable income. They sell assets that are under water because it allows their foreign dollars to come in under the cover of losses.

It is more too much government in the face of business. Too much of the worthless political class parasitically destroying the growth engine of our nation. The big mouths who cannot build anything just take from those who can. The big mouths then enlarge their world, and have to take more and more. It has been soaring since WWII and it does not bode well for the future.

Small government, reduce regulation, reduce our tax system, reduce the dole, completely restrict welfare benefits to immigrants.

[reed13k]

actually yeah I did - my point was the sentence isn’t true to what is on the corporation balance sheets - which indicates cash independent of how it’s held.

[reed13k]

As a similar poster noted - he has to pay taxes on his income earned overseas independent of where he banks it - why should corporations be different - they are considered “persons” after all.

[expat_panama]

he has to pay taxes on his income earned overseas independent of where he banks it - why should corporations be different

--ah, too much 'inequality' here and that has to be stomped out right away so we're all equal. 

OK, equality is our god and master that we serve and obey no matter what, so how about we cut his overseas taxes to make equal.  Ooops, that's no good because the gov't must have everyone's money or because if we cut taxes then we'd have to cut spending (yikes!  sorry about all the obscenity).   Now I understand why everyone just wants to raise business taxes and leave it at that.

Maybe I was a bit heavy on the sarcasm there --or maybe not...

[reed13k]

It isn’t about the inequality it’s about the different rules depending on wether someone is an independent or a corporation.

I’m fine with people earning big bucks and I’m sure as hell ok with lower taxes - provided they don’t use that power to put in place regulations to prevent competition....because THAT isn’t free commerce.

The issue is disparate regulation not that the corps. make money.