When he testifies to the Senate Permanent Subcommittee on Investigations next week
The basic background is that a US corporation only pays US corporate income tax on profits made inside the US, or foreign profits brought back to the US (it's a little more complex than that but that's close enough). Given that the US corporate income tax rate is 35%, one of the highest in the world, there's a certain reluctance on the part of companies to bring their foreign profits back. Park them offshore and don't pay the 35% seems to be the conclusion of most of said companies.
Various solutions have been suggested. One is simply to tax the profits whether or not they come back to the US. Another would be to make foreign profits tax free for US corporations. What is much more likely to be suggested is either a lower rate for repatriated profits, or some form of amnesty for a limited period of time.
Cook has indicated that he'll not be arguing for the tax free option, that there ought to be some taxation rate on foreign profits, even if not the full rate.
Over in The Guardian Heidi Moore gives us her usual incisive logic on the subject:
About $1.7tn of US corporate dollars are sitting overseas, and those companies say they would love to bring it back to the United States. But what they would do with it?
They say they would invest it in the American economy. A New America Foundation study (pdf), co-written by Laura D'Andrea Tyson,
maintained that companies could use the money for two purposes:"They can distribute them to their shareholders in the form of dividend payments and share repurchases; and they can use them directly to fund their domestic economic activities or to reduce their debt."
The paper estimated that $581bn in repatriated cash would go to to US shareholders, of which $192bn will go to US households. With the struggling US consumer and 12 million people unemployed, that sounds like a nice boost for the economy. Appealing, right?
It does indeed sound appealing. The money comes back into the US, it is either invested by the companies themselves or is "spent" on providing dividends to the shareholders. Who then either invest it or spend it themselves. It sounds not just appealing but very sensible indeed actually: who wouldn't like the US economy to have a hundreds of billions of dollars boost in either investment or spending?
But we're then told that:
Companies had a tax holiday once before, in 2004, when a set of major corporations were allowed to bring back their overseas profits at a tax rate of only 5.25%. You might imagine that it resulted in an enormous economic boost, but here's what happened instead, in the words of Treasury official Michael Mundaca:
"There is no evidence that it increased US investment or jobs, and it cost taxpayers billions … the nonpartisan Congressional Research Service reports that most of the largest beneficiaries of the holiday actually cut jobs in 2005-06 – despite overall economy-wide job growth in those years – and many used the repatriated funds simply to repurchase stock or pay dividends."
So we tried a tax holiday before, it accomplished nothing except lining some corporate coffers, and it hurt the economy.
Which is an argument that I'm afraid that I really don't follow. The aim and point of a repatriation tax break is to get the money out of the corporate offshore ledgers and into the hands of people who will actually do something with it. Like the shareholders who do actually own the money anyway. The complaint is then that because a repatriation tax break will put the money into the hands of the shareholders, as the policy is intended to do, therefore the policy will be a failure.
Sorry? What?
Ms. Moore isn't the only one who tries to use this argument though: there's an awful lot of people who seem to think that allowing the shareholders to have their own money is in some manner a waste. The money disappears perhaps? When the truth is that the shareholders are going to have to do something with that money when they get it: either invest it or spend it. And more investment and more spending is really what the economy needs right now. Therefore the repatriation tax break sounds like a very good idea.
Even better would be to simply abolish the corporate income tax altogether: but I have my doubts as to whether that's actually politically possible. Despite the fact that if dividends were then taxed at the marginal income tax rate of the recipient there's no certainty that there would be any loss of revenue.
