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Ron Paul and the Repatriation Tax

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During the most recent Republican presidential debate, I sat watching to see if a frontrunner or serious candidate might emerge among the clowns and the scandals waiting to happen. Ron Paul, the libertarian standard-bearer and stalwart champion of deregulation, whose name rarely fails to surface when election time draws near, was the only candidate to answer the questions asked of him. Not only that, he answered them in very concrete terms, avoiding the escapism so prevalent in many of his opponents’ answers.

It should have been no surprise to long-time political enthusiasts that in his answers, Paul trotted out many of his most well-known (and least popular) political ideas. He demanded that other candidates take a stand on whether the Fed ought to stick around or be shut down, he lectured on free market values versus overregulated government, etc. Of particular interest to me (primarily since it runs against common sense) was Paul’s call to end the Repatriation Tax.

Now, at this point in our development as a nation, it should never be surprising to hear a Republican candidate rattle the tax-cutting sabre every election period. No one, bleeding heart liberal or right-wing conservative, enjoys seeing his or her hard-earned money shoot straight from the paycheck to Federal coffers. Nevertheless, as with any political policy, the implications of cutting taxes ought to be examined carefully. I’d like to take a look at exactly what the Repatriation Tax is, how it stands now, and how removing it would not only result in the opposite of what Paul and his supporters want, but would also be devastating to Federal revenue and to any efforts to curb the excesses of multinationals.

Simply put, failing to tax income made outside the U.S. that comes into the U.S. would only spur multinational corporations to invest more heavily in non-regulated countries which offer no minimum wage or regulated working conditions.

First, what exactly is repatriation? Repatriation of funds refers to the movement (and especially conversion) of profits made in one country to the home country of the business or individual in question. So, for example, if I am the CEO of a large company that produces shoes and is 51% American-owned, there are many situations in which I might be earning profits in another country but would like to use them in the United States. By repatriating my company’s profits, I am able not only to pump fresh funds into the market, but to expand infrastructure in America, create more shoe-related jobs, hire desperate American workers, etc. However, some countries (America included) have a repatriation tax which applies to all such conversions and transfers. Such a tax is a disincentive to repatriate earnings and therefore to reinvest in your home country. And so, as Ron Paul and others argue, getting rid of the Repatriation Tax would become an incentive for multinational corporations to repatriate their profits and reinvest in American jobs and industries.

All of this would be well and good if what is true in theory were also true in practice. Unfortunately, Paul and his colleagues ought to reread Immanuel Kant and take another look at the chapter titled “Rational Self Interest” in their free market handbooks. First, repatriation itself usually only benefits a company or an individual when transferring funds from a higher-valued currency to a lower-valued currency. If I run a Mexican-owned company operating in the U.S. and trade $10 for 100 pesos, my spending power goes up and therefore I might be willing to pay a 10 peso tax in order to increase my spending power. While plenty of American companies might be based in economies utilizing the euro (and therefore would benefit from repealing the Repatriation Tax) many more are situated in countries where currency is valued far below that of the country of origin. So, there is little economic gain to be had in repatriating lower-valued currency into higher-valued currency, since holdings in a high-value currency will be much smaller. In such instances, a company is better off investing in the country where the lower-valued currency is earned. This would mean that, repatriation tax or not, for a multinational corporation earning money in Indonesia, it is far better to continue to invest in Indonesia and make use of Indonesian currency rather than repatriate into USD and essentially lose profits.

The second issue with repealing the Repatriation Tax is that, while It might incentivize repatriation in some specific instances, it simultaneously offers a disincentive for general production and investment domestically. This is true because, if I know I will be taxed for returning foreign profits to the U.S., I will be more inclined to invest domestically to avoid the tax altogether, or at least lessen the percentage of profits that are subject to the tax. Thus, removing the repatriation tax would offer more of an incentive to invest in infrastructure outside of the country because, knowing that any income transferred from abroad will not be taxed, no rational actor would choose to develop infrastructure and investments in those countries that have more government regulation in the way of labor laws and regulation. The results? Removing the repatriation tax would result in increased investment in countries like China, Uganda, and Indonesia, where labor is cheaper and less regulated. Profits can then be repatriated without concern that taxes will eat into any gains.

And finally, as Jared Bernstein points out, contrary to Ron Paul’s claims, “A tax holiday enacted in 2004 failed to produce the promised economic benefits.”

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About Jared N. Smith

  • http://thethinred.blogspot.com DF Sayers

    “Simply put, failing to tax income made outside the U.S. that comes into the U.S. would only spur multinational corporations to invest more heavily in non-regulated countries which offer no minimum wage or regulated working conditions.”

    I’ve made this argument for some time – indeed, all of the “non-competitive” criticism of US economy misses this point. Allowing companies more power to hold referendums on national profitability will only drive standards down. Coupled with a nuanced understanding of just how well nations like Germany have done in the context of heavily controlled industry, its hard to honestly argue that “freeing capital” will help anyone but capitalists.

  • http://philosophyandpolity.wordpress.com Jared N. Smith

    I agree. While regulation itself might not be a desirable political policy, an examination of the way large companies past and present behave when there is no regulation ought to demonstrate that, moral evil or not, regulation is required.

    During the Republican Presidential Debate, one candidate said that this nation’s railroad system was build without Federal aid. However, he failed to mention that it was built by monopolistic tycoons who were bleeding the market dry and destroying competitors right out of the gate using overwhelming capital and profit gains. How can any startup fight a war of attrition without a little bit of regulation on their side?

  • Leroy

    Really? And no one pointed out how dead wrong that candidate was when he said the railroads were not subsidized?

    Of course they were immensely subsidized, both before and during development and afterwards with favorable shipping contracts. There is NO form of transportation that hasn’t gotten tremendous government subsidies, except maybe hot air balloons, and I’m not so sure about that.

    The 19th century was rife with government backed and subsidized transportation projects, including all the canals.

    I’m astounded that someone could say something so wrong and not be confronted immediately. Is our education so bad that students learn no history? Or is the role of government in American business development suppressed for partisan political purposes?

  • http://philosophyandpolity.wordpress.com Jared N. Smith

    I may have painted too general of a picture. I looked back at the CNN transcript and Gingrich said in response to a comment about defunding NASA: “GINGRICH: John, you mischaracterized me. I didn’t say end the space program. We built the transcontinental railroads without a national department of railroads. I said you could get into space faster, better, more effectively, more creatively if you decentralized it, got it out of Washington, and cut out the bureaucracy. It’s not about getting rid of the space program; it’s about getting to a real space program that works.”

    So, while Gingrich certainly did not say that there was no government aid at all, I fear that many of the viewers (myself included) took his statement to mean that he was claiming the Free Market is responsible for building transportation infrastructure and that all the government does is hamper the free flow of a natural and fluid market. He seems to think the same thing for spaceflight, by the way…

  • Clavos

    Is our education so bad that students learn no history?

    Actually, it’s worse than that.

    They learn nothing…

  • http://philosophyandpolity.wordpress.com Jared N. Smith

    “Over all, 20 percent of fourth graders, 17 percent of eighth graders and 12 percent of high school seniors demonstrated proficiency on the exam, the National Assessment of Educational Progress. Federal officials said they were encouraged by a slight increase in eighth-grade scores since the last history test, in 2006. But even those gains offered little to celebrate because, for example, fewer than a third of eighth graders could answer even a “seemingly easy question” asking them to identify an important advantage American forces had over the British during the Revolution, the government’s statement on the results said.” NY Times.

  • zingzing

    “Actually, it’s worse than that. They learn nothing…”

    that ain’t true. why, i was learned how ta reed and rat in one of them what buildings that all the ejucating go on in with the teacher lady with the dopey eyes. if i ain’t learnt nothing, how’s it i can express ma consternation what with what you scribbled up yonder? huh?

  • Glenn Contrarian

    Hey – the Republicans have the answer on how to fix our abysmal education system – cut the funding! Get rid of Head Start, get rid of full-day kindergarten, slash teacher pay, increase class sizes…guess what? Our educational system will be magically fixed!

  • Clavos

    “consternation,” zing?

    Whut dew hit meen???

  • Arch Conservative

    “Hey – the Republicans have the answer on how to fix our abysmal education system – cut the funding!”

    You’ve got a point Glenn. The solution can only be to leave the liberals who’ve controlled the education system for the last 40 years in charge and throw more money at the problem.

  • Glenn Contrarian

    Right, Arch – have 40 or 50 kids per classroom and the kids will learn more since they have less attention from the teacher. Force teachers to get second jobs to support their families so they won’t have time to grade homework and tests. And since when have four- and five-year-old kids needed to learn?

  • http://philosophyandpolity.wordpress.com Jared N. Smith

    …Or we could elect and support only those representatives, regardless of party affiliation, who understand that belt-tightening across the board is the only way to fix our mistakes. That’s right – OUR mistakes. A former President of a certain party might have racked up our current deficit, and our current President of the other party might have topped it off as well, but ultimately we have tolerated and continued to support a society that deifies conspicuous consumption, all the while labeling it “The American Dream.” Pointing fingers at one party or another, one side of the political spectrum or the other, only serves to draw attention away from the problem.

  • Glenn Contrarian

    OR we could bear in mind that we’re paying LESS in taxes now than we have in the past fifty years! Wanting to pay less in taxes is one thing – but there IS a point where paying less taxes actually HURTS the nation as a whole…and we’ve long since passed that point.

    I find it REAL interesting that it’s under the OBAMA administration that we’re paying less in taxes than at any time in the past half century…but the Republicans are waaaaay up in the air claiming that the Democrats are somehow taxing America to death….

  • Clavos

    but the Republicans are waaaaay up in the air claiming that the Democrats are somehow taxing America to death….

    Actually, they’re not.

    They’re claiming (correctly) the Dems (actually the administration Dems, not all of ’em) are spending Amurrica to death — yes, even more than GWB, who, until Obie, was the biggest spender to date. This, of course, will result in future generations (can you say grandchildren?) will be taxed to death — assuming of course, that the country actually lasts that long; by no means a sure bet.

  • http://www.republicofdave.com Dave Nalle

    Jared seems not to grasp the real problem with the repatriation tax, which is that – putting aside the minor details he mentions – it causes multinational corporations to keep their profits out of the US entirely, not spending them here, not investing them here, not using them to finance new operations here. The money just stays in other countries, benefits them and does nothing to help anyone in the US.

    It’s a policy as idiotic as the corporate taxes which drove those companies overseas in the first place.

    Dave

  • http://philosophyandpolity.wordpress.com Jared N. Smith

    Dave,

    Contrary to having failed to grasp the problem with the Repatriation Tax, I have outlined it. It is a ghost tax – Ron Paul and yourself claim that it is the force which prevents multinationals from repatriating their profits and investing in the domestic economy. However, as the Jared Bernstein article I linked to demonstrates, when there was a Repatriation Tax Holiday in 2004 there were very few corporations willing to repatriate a fraction of the mountains of profits they were sitting on overseas. I suppose you could say the subtext of my article is that removing the Repatriation Tax is more a gesture than a policy. It puts Paul in the “Tax Slashers” camp rather than just the “End the Fed” and “Free Market Or Death” camps.

    Further, most repatriation occurs at a currency-trading level. Corporations will abuse currency fluctuations to their favor in order to gain a profit which is then invested in the way it has normally been, which is to say, not at all. Since this is a CURRENT practice, why on earth should we cut the tax that prevents multinational corporations from manipulating currency markets to artificially enlarge their profits?

    If you are trying to get me to say that it is a broken system then by all means, it is a broken system. But the fault lies not with our attempts to regulate but rather with the nature of profit-seeking corporations and their behavior. I see nothing in your comment that does not toe the Ron Paul Repatriation line that taxes are disincentives and abusive to the market and therefore must be cut regardless of what the practical applications of those taxes might be.

  • Leroy

    There should be a repatriation tax. There is NO need to create an incentive to repatriate profits to the USA because there is an ocean of available capital domestically. Banks are sitting on $2trillion of cash available for capital and businesses are sitting on another $2trillion of ready cash. Plus, credit has never been cheaper or more available than today.

    Businesses have successfully employed the power from the Great Deregulation to create the Efficient Markets beloved of the Supply-siders. They have no worlds left to conquer.

    Unfortunately, there is no market demand. We have a Demand Drouth. There is nothing in supply-side econ to produce consumers or markets. Oops! All the supply-side theories just assume the magical appearance of consumers, as if there is a never-ending fountain of them. So that makes it OK to undermine the finances of the middleclass. Oops! They shot themselves in the foot.

  • Evan

    “First, repatriation itself usually only benefits a company or an individual when transferring funds from a higher-valued currency to a lower-valued currency. If I run a Mexican-owned company operating in the U.S. and trade $10 for 100 pesos, my spending power goes up and therefore I might be willing to pay a 10 peso tax in order to increase my spending power. While plenty of American companies might be based in economies utilizing the euro (and therefore would benefit from repealing the Repatriation Tax) many more are situated in countries where currency is valued far below that of the country of origin. So, there is little economic gain to be had in repatriating lower-valued currency into higher-valued currency, since holdings in a high-value currency will be much smaller. In such instances, a company is better off investing in the country where the lower-valued currency is earned. This would mean that, repatriation tax or not, for a multinational corporation earning money in Indonesia, it is far better to continue to invest in Indonesia and make use of Indonesian currency rather than repatriate into USD and essentially lose profits.”

    Notwithstanding the rest of this very flawed and poorly reasoned article, for which I’d rather not waste even more of my time just to debunk its many absurd notions, the quote above is particularly revealing, while at the same time being hard to believe as well as just plain hilarious. Now, you are of course aware that the quoted nominal value of a currency in relation to another currency’s respective spot price, does not inherently, in any way, indicate that currency’s relative purchasing power, right? Again, to put it simply, a 100:1 ratio of currency X to currency Y does not mean that currency Y is worth 100 times more than currency X. The fact that this author would apparently misunderstand such a fundamental monetary concept (not to mention cite Jared Bernstein as credible for anything important or relevant) should have been clear and convincing evidence enough that he had no clue when it came to an analysis and proper understanding of macroeconomic theory.

    Unfortunately, as also evidenced by a number of the above comments, this kind of ignorance and general lack of logic is endemic in “these united States” and the vast majority of the rest of the world, and is just a small part of the reason why I don’t place much hope in the prosperous and enlightened future of this human race. Likewise, this also happens to be a prime example as to why someone of Ron Paul’s caliber will never be elected president (besides not having enough fellow contributors make the maximum donation this time around), at least not until it’s already too late, which, in part due to the global debt crisis and impending fiscal and fiat currency collapses, it probably is. I, for one, won’t be able to flee this once inspiring country until early next year, and not a moment too soon, though the tentacles of this leviathan stretch to all corners of the globe (and speaking of Southeast Asia, Thailand seems pretty nice, for now anyway). I’d very much recommend the same for anyone who is able, and who values their life, liberty, and/or pursuit of property, i.e. “happyness”.

    In any case, have a nice day!

  • Leroy

    So, Evan, are you equating property with happiness?

  • Arch Conservative

    Glenn:

    Numerous studies have shown that private Catholic schools spend less money per pupil than the public school counterparts yet produce pupils that routinely score better on standardized test and other measures of learning.

    You can try to spin our pathetic education system any way you want to blame conservatives but that just doesn’t jibe with reality.

    It is the liberal left that has dominated the faculty and administration of our education system for the past forty years. That’s not even to mention the teacher’s unions and the harm they have done. It is the left and their policies and ideas that have failed our education system but please don’t let that FACT stop you from spinning your delusions about it all being the fault of conservatives Glenn,

    That is the generic, one sized fits all, bread and butter solution coming from the left in response to everything thought. Throw more money at the problem and more government intervention. the left believes that answer is the answer too all of mankind’s problems…………..There is nothing that can’t be solved by the state if you would just give it more of your money.

    Right Glenn?

  • http://philosophyandpolity.wordpress.com Jared N. Smith

    Evan,

    Thank you for taking the time to read my piece. I am glad it brought you mirth and I welcome any criticisms you might have. I am certainly no expert in economics – that would be why this is labeled an Opinion piece.

    You are correct that I oversimplified the example of dollars to pesos, and you are also correct that my depiction of purchasing power is not as clear as it ought to be. That being said, clearly I do not believe that the relationship between currencies in trade reflects purchasing power. However, this does not change the point of the section you quoted, a point which I reiterated in an above comment: corporations utilize repatriation to manipulate currency fluctuations in order to increase profits. History shows that they do not use it to invest in the country to which they are repatriating. And so while I admit my USD/Peso example is simplified and does not best represent the example of the use of repatriation to increase profits, your comment in itself does not offer any counterpoint against which I can reply.

    You say my article is poorly reasoned and flawed but offer no examples other than the one I have just addressed, which again has more to do with my example and not my argument itself. You also attack Jared Bernstein as a source but offer none of your own or any reason to question his credibility. It is easy to say an argument is poorly reasoned and flawed, but much more difficult to actually demonstrate that claim. I am more than happy to address any more criticisms you might have about my piece or the opinion expressed therein. I only ask that you frame your future critiques respectfully and in the spirit of academic discussion rather than acrimonious polemic.

  • Clavos

    “drouth?”

    How quaintly Shakespearean…

  • Evan

    Leroy,

    No, I was just referencing an earlier draft of the Declaration before, if I recall correctly, Ben Franklin suggested to Jefferson to go with “happyness” instead. This does however give an indication of the original intent and, at least in their own minds, the similarity between the two concepts, whereby happiness is the more all-encompassing term. The point, though, is that being able to pursue private property, in other words to keep the fruits of one’s own labor (ignoring any potential hypocrisy regarding slavery and the similar concept of self-ownership) should be an, and in fact is, one of the mentioned inalienable rights. The alternative would be a monarch or state, etc. having a claim to you and your labor (or any other form of trade) and dictating what you can and can’t do with what is rightfully yours and yours alone, which was part of the reason the framers of the Constitution disallowed direct federal taxation, reversed of course unfortunately with the 16th Amendment in 1913.

    So, obviously the idea of being able to pursue property free of the shackles of government fiat, does not in anyway equate to materialism or “consumerism” or what have you. Actually, on the subject of self-ownership, there is a relatively simple but quite compelling case that is made in the well-known (among some anyway) “The Philosophy of Liberty” animation that I’ll link to here: http://www.jonathangullible.com/philosophy-of-liberty

    Good luck with your intellectual pursuits regardless of whether they lead to happiness.

  • Glenn Contrarian

    Arch –

    Numerous studies have shown that private Catholic schools spend less money per pupil than the public school counterparts yet produce pupils that routinely score better on standardized test and other measures of learning.

    That’s a false dichotomy, a false comparison. Why? Because very, very few private schools are MANDATED not only to accept ALL pupils regardless of ability (or lack of ability), background, or religion…and ZERO private schools are MANDATED to provide transportation for ALL students (including wheelchair-bound) within their areas of responsibility.

    For instance, Arch – this very moment downstairs I’ve got one child who is permanently wheelchair-bound, has a trach and a g-tube and requires sixteen hours of licensed nursing care every day, 365days/yr. The other child is 18 y.o., has a g-tube, and has a mental age of maybe 12-18 months (he’s a low-functioning autistic).

    Tell me, Arch – how many private schools would not only accept my Foster kids, but also be MANDATED to provide transportation and be MANDATED to provide licensed nursing care for one and one-on-one caregiving for the other? Not too many.

    Get the point? There are very, very, VERY few private schools out there who even optionally do everything that a public school is required to do. If a private school did everything that a public school does, I strongly suspect you’d find the prices of a private school MUCH higher.

  • Leroy

    Catholic schools get to employ the cheapest labor: nuns and the religiously highly committed. IMO they are taken advantage of.

    You?e out-of-date Arch: school administrations have been stridently rightist for several years, although there remains the occasional leftist teacher now and then.

  • Clavos

    If a private school did everything that a public school does, I strongly suspect you’d find the prices of a private school MUCH higher.

    I don’t entirely accept your argument about the cost assumed by public schools if for no other reason than that such costs as transportation are assumed by many private schools, who DO operate bus systems for pupil transportation, and many private schools are actually dedicated to educating special needs children.

    But assuming for the sake of argument that you are correct in the assumption that private school costs per pupil are higher, it’s also true that you get what you pay for, and for the most part, private schools, including catholic schools, are far superior to public schools in the education they provide.

    And Leroy, while your point about nuns staffing catholic schools was true at one time (though even years ago, the ratio of nuns to lay teachers was close to 50-50), these days with the steadily declining number of young people entering religious orders, the catholic schools are mostly staffed by lay teachers.

  • zingzing

    “many private schools are actually dedicated to educating special needs children.”

    and are their costs lower than a public school? of course they aren’t. that seemed to be missing.

    also, public schools are public schools, but let’s not pretend they all get the same amount of money. public schools with parent money thrown at them do a lot better. public schools in poor neighborhoods suffer, and the parents can’t help it. the parents are less involved and they have less to give, although i’d bet they would if they could.

    money = education, in the end. or as you say, you get what you pay for.

    but it’s not quite that simple, is it? money’s one thing, and schools one thing, but an involved parent and a good pupil (weird how that word sounds so similar to “pimple” and “papule” and “pustule,” but i guess it comes from similar roots) are another. there’s a three-way going on here, and it often doesn’t work out well.

    as far as i know, my dad (who is very smart–mathematician, as it goes,) is the only person i know who went to a private school of any kind (before college). i know many well-educated people. somehow we all made it out of public school alright. given the criticism and ridicule of older folks, i don’t know how.

  • Evan

    Hey Jared,

    After rereading your piece I have discovered that it mostly consists of fluff and quite frankly there is little in the way of actual substance to debunk, aside from what I already did. That being said, for some reason I have decided to go against my better judgment and discuss the few relevant (and not so relevant) points that I could find. Firstly, let me try to quickly respond to a few of the comments that you addressed to me.

    “I am certainly no expert in economics – that would be why this is labeled an Opinion piece.”

    Neither am I, but I would suggest having at least some understanding of the subject matter before trying to convince people to agree with your viewpoint, in order to avoid the spread of misinformation.

    “However, this does not change the point of the section you quoted, a point which I reiterated in an above comment: corporations utilize repatriation to manipulate currency fluctuations in order to increase profits.”

    I am glad that you acknowledged the mischaracterization you made in describing how foreign exchange markets operate, but the point you reference here no longer has a supporting argument or example. How are so you sure that they do this? And assuming that this is done in the open marketplace, what would be wrong with them trading currencies in an attempt to increase revenue? To the best of my knowledge, only central banks and other state sponsored institutions have the power and resources to manipulate major currencies for their own benefit or for that of other well-connected enterprises.

    “You say my article is poorly reasoned and flawed but offer no examples other than the one I have just addressed, which again has more to do with my example and not my argument itself. You also attack Jared Bernstein as a source but offer none of your own or any reason to question his credibility.”

    Again, there aren’t really many economic arguments to address, but I’ll do what I can. Bernstein was an Administration hack (Biden’s more specifically) which should be enough to completely discredit him policy wise, as well as in the belief that his views are entirely his own, but I’ll address his weak propaganda piece shortly. As far as a source who has a superior understanding of economics and history, in addition to being able to defend Ron Paul’s “extreme” positions quite competently, I would recommend you check out this excellent video from Tom Woods.

    “Ron Paul, the libertarian standard-bearer and stalwart champion of deregulation, whose name rarely fails to surface when election time draws near, was the only candidate to answer the questions asked of him.”

    Seriously? Ron Paul ran for president 3 years ago as a Republican, as well as 23 years ago on the Libertarian ticket, which, in spite of the fact that I happen to be a lifetime member of its national party, was hardly a candidacy that I would have characterized as serious. Enough with the media driven attempts to discredit him as an also-ran.

    “Removing the repatriation tax would result in increased investment in countries like China, Uganda, and Indonesia, where labor is cheaper and less regulated.”

    Assuming that’s an accurate statement, so what? Is there something inherently wrong with helping other people who happen to have a disadvantaged socioeconomic, ethnic, or geographical background? Regardless of your apparent concerns about the appropriate amount of “regulations”, any individual who voluntarily engages in labor in exchange for an agreed upon amount and under agreed upon conditions, should in the vast majority of cases have an overall better quality of life than if he or she had not done so. Ultimately, those choices can only rightfully be made by those individuals and their respective employers, who, I might add, have just as much right to profit from these exchanges as their partners in trade.

    “And finally, as Jared Bernstein points out, contrary to Ron Paul’s claims, ‘A tax holiday enacted in 2004 failed to produce the promised economic benefits.'”

    I don’t know that Ron Paul ever called for this tax holiday, but I am sure that he would simply advocate for a tax retirement, that is, for good. I also don’t pretend to know the pros and cons of this holiday in 2004, or the economic effects and analysis as to the reasons why, but, in general, tax holidays, like tax credits or expenditures, are gimmicky and will always be inferior to long-term rate cuts and outright eliminations. Although having more cash in private hands and less in D.C. will almost always inevitably be a good thing.

    “I’ve got a good simple idea that solves all of the above, at it’s one we proposed during my time in the Obama Administration. No more deferral of taxes on overseas profits. Boom!… problem solved.”

    This, of course, is from your namesake. Awesome, problem solved. Boom! He’s got the right idea, blow up the dam and watch all that liquidity follow the path of least resistance. Unless you have a massive “earthquake”, I’m guessing that means it’s not going to be flowing back upstream. I assume you get the picture. Hopefully, you’re no longer unclear vis-a-vis the reasons to doubt this lackey’s credibility. But personally, with the ways things are going, I’m a lot more interested in expatriation than in repatriation, and I’m afraid that I may end up being far from alone in the not too distant future. Later.

  • Clavos

    as far as i know, my dad…is the only person i know who went to a private school of any kind

    More of the people I know went at least one year to private schools than not (counting catholic schools as private).

    My little sister(! — she’s now in her 50s and stands 6’0″) never went so much as a day to public school — from kindergarten through a BA.

  • Glenn Contrarian

    Clavos –

    I don’t entirely accept your argument about the cost assumed by public schools if for no other reason than that such costs as transportation are assumed by many private schools, who DO operate bus systems for pupil transportation, and many private schools are actually dedicated to educating special needs children.

    Can you list a couple of such schools? I’d like to know a little bit more about them, seeing as how I have such children….

  • Clavos

    Start with Pine Crest School in Ft. Lauderdale (actor Kelsey Grammer’s alma mater), whose buses roam all over three counties to pick up and take home students.

    Belen Jesuit Preparatory School in Miami (formerly of La Habana, Cuba). Notable graduates include the Castro brothers, Fidel and Raul, and the current and several former mayors of Miami.

    And that’s just here in South Florida.

    The prep school I went to, Tabor Academy in Marion, Massachusetts, did not have a bus service, but only a handful of students were townies. The rest of us came from other cities, states and countries (Mexico in my case) and boarded in dorms during the school year.

    But today, there a LOTS of country day schools, particularly in New England states, which cater to day-hop students and which do send buses to pick them up and take them home.

  • Clavos

    I just realized you were asking for schools which specialize in handicapped students, not those which provide buses. I’m less versed in those, but I do remember that a school also in Massachusetts, the Perkins School for the Blind in Watertown, (two well known alumni are Helen Keller and Ray Charles) is a private school.

    That’s the only one I know of personally, but here’s a link to the National Association of Private Special Education Centers which might be of use to you.

  • zingzing

    “More of the people I know went at least one year to private schools than not (counting catholic schools as private).”

    and yet this nation, currently run by people your age, is going into the pits, while the technologies and new ideas continue to flourish and the (predominantly public-schooled) youth of this country displays more creativity and innovation than ever before (as your generation did before mine, and as the next will do after i’m gone)! wow! (and my dad went to catholic school through high school, but then went to public schools for college and graduate studies. and although he is a very smart individual, and i love him very much, outside of his profession, and some music stuff [mediocre guitar player, but a good engineer], he’s about as creative as a man sitting on a toilet. he’s tried, god bless him.)

  • Evan

    Since it appears that the author of this article is either unable or unwilling to respond to my questions and comments, which were actually at his request, I’m going to assume he has no legitimate answers. That being the case, I’ll just suggest to anyone else reading this who’s at all interested in politics, and by that I mean the future survival of this country, to watch the youtube video I linked to in my previous comment, which shows Tom Woods defending Ron Paul’s positions on 15 controversial issues in his usual entertaining fashion. Lastly, for those that missed it in one of my earlier posts, check out this short, yet enlightening animation “The Philosophy of Liberty” on the vitally important concept of self-ownership, for which I’ll link to its youtube version.

    For liberty, Evan

  • http://philosophyandpolity.wordpress.com Jared N. Smith

    Hey Evan,

    I have many different obligations to attend to at the moment, so I am sorry my response did not come within 24 hours of you posting your comment. That being said, here it is:

    Thank you for going against your better judgment and giving my article a second read, as well as offering forth a response to my points. I am glad your second glance of the article found far fewer errors than you initially claimed, and I also apologize for any excess in ‘fluff’ in my article. This post was my first foray into posting with BlogCritics and I was under the impression that the suggested 500-1000 word limit was a serious one. For that reason, I meant only to provide a very general overview of how I viewed the Repatriation Tax to work and the flaws I saw with Ron Paul’s approach, i.e. ending it altogether. That being said, I would like to clarify a number of the issues that you brought up.
    “I would suggest having at least some understanding of the subject matter before trying to convince people to agree with your viewpoint, in order to avoid the spread of misinformation.”

    My mischaracterization (or rather, oversimplification) of foreign exchange markets aside, I believe you mistake my disagreement with you for ignorance on the topic. You generalize, in a manner reminiscent of an ad hominem attack, that because I disagree with you on the effect of the repatriation tax, as well as who is a credible source, that I must therefore speak from a position of complete ignorance. Nevertheless, and to stay on topic, I will address the points you have brought up.

    (1)“How are so you sure that [companies utilize repatriation to manipulate currency fluctuations to increase profits]? And assuming that this is done in the open marketplace, what would be wrong with them trading currencies in an attempt to increase revenue?”

    To your credit, and again due to my admitted imprecision in the article, it is not the manipulation of currencies per say as much as it is the shifting of funds from domestic to foreign subsidiaries, using transfer prices to avoid taxes, and then using the foreign subsidiary (or sometimes a third proxy subsidiary) to then either leave the profits offshore in foreign markets, or to repatriate under foreign tax status for the purpose of reducing taxable income. The way this dance goes is:

    First, a corporation taxes either domestic profits or foreign profits and transfers them to a foreign subsidiary using transfer prices to avoid taxing the income initially. This places the profits in a foreign market and, in the instances to which I am referring, these are markets with lower taxes. You asked for an example: according to Bloomberg News Google was able to cut taxable income (therefore ultimately raising holdings) by 3.1 billion over three years by transferring income to Bermuda.

    The second step, my initially poor explanation of corporations investing in foreign markets rather than ours, occurs when the subsidiary of the corporation sits on the profits. Because the income was sent to the foreign market to avoid taxation, bringing it back into the domestic market to invest in infrastructure would incur taxes and diminish holdings. Again, according to Bloomberg News, at the end of 2009 there was at least $1 trillion dollars just sitting in foreign markets rather than being reinvested into American factories or jobs.

    Before you say that this is ample proof that the Repatriation Tax is a disincentive, consider that tax benefits for transferring funds overseas results in a boost in share prices. How’s that? Well whatever the effective income tax rate is (and remember, it is lower in foreign markets like Bermuda) demonstrates performance. If you show a larger income due to manipulating earnings through transfers to foreign subsidiaries, that makes your company appear to be more profitable and shares go up. So, if I am the CEO of a corporation, why would I bring my money back into the U.S. if, by transferring it OUT of the U.S. I am able to avoid taxation as well as increase the value of my own personal stock options? At some point, funds do need to head back to the U.S. because otherwise, as a U.S. company that is hardly holding any domestic income, you will bleed yourself dry.

    Cue the subsidiaries again, who can then utilize their holdings to pay for things like mergers and subsidiary purchases either with very low taxes or tax free, as was the case with the company Merck & Co Inc. in 2009. This occurs through either complex manipulations of tax rules, or just through using foreign tax credits.
    Here are a few companies that benefited from such procedures, courtesy again of Bloomberg News (if you want to quibble with my source I will be happy to provide a different one):
    Merck & Co Inc.
    Pfizer Inc.
    Eli Lilly & Co.
    Google, Inc.
    International Business Machines Corp.

    All of this, by the way, is happening outside of the jurisdiction of the Repatriation Tax. Not only does the Repatriation Tax encourage U.S. multinational corporations to transfer the majority of their incomes to foreign markets, but when the time comes, the money is transferred back to the domestic holdings relatively tax free. So, I suppose you could say that the situation is even worse than I depicted it in my article. Chalk that up to misinformation too, if you’d like.

    Further, here’s paraphrasing from an actual expert on the topic:
    “The argument that a new tax break for offshore earnings would generate a domestic stimulus ‘holds no water at all,’ said Joel B. Slemrod, an economics professor at the University of Michigan’s school of business and former senior tax economist for President Reagan’s Council of Economic Advisers. U.S. companies are already sitting on a record pile of cash — $1.9 trillion in liquid assets, according to Federal Reserve data.”

    (2)This brings me to your second point of contention, that you seem to believe I think there is “something inherently wrong with helping other people who happen to have a disadvantaged socioeconomic, ethnic, or geographical background.”

    This is obviously not the case. We can save a discussion about the damaging effects of past and present colonial abuses on developing nations for another time. All I am pointing out is that, if you are concerned about stimulating the U.S. economy, then U.S. multinational corporations investing in foreign markets is not preferable. Would you disagree?
    Your third point:

    (3)“Regardless of your apparent concerns about the appropriate amount of “regulations”, any individual who voluntarily engages in labor in exchange for an agreed upon amount and under agreed upon conditions, should in the vast majority of cases have an overall better quality of life than if he or she had not done so.”

    While I will avoid the phrase “absurd notion,” I will certainly point out that this line of reasoning denies the possibility of exploitative contracts, of foreign governments who fail to adhere to even the slightest regulation of working conditions, etc. If you are trying to argue that an abusive job is better than no job at all, that is certainly a different claim than any labor contract entered into puts the laborer into a better position or quality of life than had the laborer not entered that contract. Or are you trying to claim that contracted labor is better than non-contracted labor?

    Your fourth point:
    (4)“Ultimately, those choices [terms of a labor contract?] can only rightfully be made by those individuals and their respective employers, who, I might add, have just as much right to profit from these exchanges as their partners in trade.”

    I am not arguing, nor have I ever, that other nations or their citizens do not have the right to enter into labor contracts. Nor am I arguing that corporations are not allowed to profit from employing foreign laborers. What I AM trying to point out is that the repealing the Repatriation Tax will not result in a stimulus to the domestic economy precisely because it is (a) so easy to avoid taxes through transfers to foreign subsidiaries, (b) U.S. funds invested in foreign markets cannot be invested in domestic markets, and if one is concerned with the American economy, that would be a problem, and (c) funds that have escaped the Repatriation Tax show few signs of being injected into the economy, and attempts to lower the Repatriation Tax via a tax holiday demonstrate very little interest on the part of corporations. The working conditions of foreign laborers and the use of abusive sweatshops is a separate issue, and not a wholly economic one.
    If I have missed one of your points, used a hackneyed argument, or a cited a lackey rather than a legitimate source/expert I am sure you will let me know. As a side note, however, I am curious as to why you continually reference your desire to leave the U.S. and how it bears upon our conversation.

    Finally, though the tone of our conversation has not been as pleasant as I would have liked, I genuinely appreciate your insight and your viewpoints on this issue, even if we disagree. Should you have a previously written piece, or a future piece, concerning this or a related topic, I would be very interested in reading it.

    -Jared

  • http://thethinred.blogspot.com DF Sayers

    Jared Smith – The railroad system actually worked with the Federal Reserve as soon as it came about to lower wages and expand the profitability of Railroad bonds and by extension, the Fed:
    “Thus a major goal of the program was to revive railroad bond value, of which major New York banks held $200 million, comprising a third of their private bond portfolios in December 1931, and bond prices in general. Private bankers and the federal reserve saw wage cuts as a necessary condition to reviving those values.” -Thomas Ferguson, Golden Rule

  • Clavos

    and yet this nation, currently run by people your age, is going into the pits…

    Meaningless in terms of the context of where they were educated. The condition of the country (which I agree is dire) is far more a result of liberal social engineering on the part of the federal government over the past 60-70 years than any other single factor.

    The exact same phenomenon is taking place in Greece and the other EU countries, and for the same principal reason.

  • zingzing

    well, the current financial situation is primarily the fault of wall street and the housing bubble anyone could see would burst but were too greedy to stop exploiting. “social engineering” is a bit of a boogieman when you’ve got those two thugs pointing guns in your face. the economy goes boom, the economy goes bust. we just got fuckered by a bigger bust than usual. but we’ll do it all over again as soon as we can.

  • zingzing

    “The exact same phenomenon is taking place in Greece and the other EU countries, and for the same principal reason.”

    strange it would happen at this very moment where most financial markets around the world are suffering. you’d think they’d be related somehow.

  • Clavos

    They’re (the EU countries) all realizing (in part because of the bust) that they bit off more than they can chew in terms of entitlements, and the sooner we realize it too, the sooner we’ll pull ourselves out of this mess.

  • Evan

    “Thank you for going against your better judgment and giving my article a second read, as well as offering forth a response to my points. I am glad your second glance of the article found far fewer errors than you initially claimed, and I also apologize for any excess in ‘fluff’ in my article. This post was my first foray into posting with BlogCritics and I was under the impression that the suggested 500-1000 word limit was a serious one.”

    Firstly, my better judgment indicated that I shouldn’t expend even more of my time and energy to discredit every relevant claim or argument in this ultimately inconsequential (no offense) blog post than I already did, carefully reexamining the piece was just incidental to doing so. As I said, your article had some less than robust descriptions and analysis, as have your replies to my comments, but it’s counterproductive to point out and critique every misstatement, substantive or otherwise.

    Needless to say, I don’t think your comments have any such suggested word limits. Honestly, you probably would have been better off just quoting applicable sections in the Bloomberg article that you linked to, instead of trying to clearly articulate the admittedly complex explanations that it spelled out. Alright, that about does it for the tangential personal slights and/or “meta-comments” for this post. :)

    “To your credit, and again due to my admitted imprecision in the article, it is not the manipulation of currencies per say (sp) as much as it is the shifting of funds from domestic to foreign subsidiaries, using transfer prices to avoid taxes, and then using the foreign subsidiary (or sometimes a third proxy subsidiary) to then either leave the profits offshore in foreign markets, or to repatriate under foreign tax status for the purpose of reducing taxable income.”

    Did you actually read the Bloomberg piece? Other than being tedious to get through, I found it to be rather horrifiying. All that wasted brain power and resources just to try to get around the ridiculous “regulations.” And all of it in an effort by them to attempt to keep more of their own money. I’m guessing all that red tape gives the more established companies a competitive advantage too.

    “While I will avoid the phrase ‘absurd notion,’ I will certainly point out that this line of reasoning denies the possibility of exploitative contracts, of foreign governments who fail to adhere to even the slightest regulation of working conditions, etc. If you are trying to argue that an abusive job is better than no job at all, that is certainly a different claim than any labor contract entered into puts the laborer into a better position or quality of life than had the laborer not entered that contract.”

    No, actually it’s really not. I stand by my statement. As for whatever it is that you consider to be “exploitation,” I’ll give a simple, if not extreme, illustration. In poverty stricken regions and countries that have outlawed (and enforced) or severely restricted child labor, pronounced increases in prostitution, and even outright starvation, have all too often been the result for a great number of these children.

    “As a side note, however, I am curious as to why you continually reference your desire to leave the U.S. and how it bears upon our conversation.”

    Well, initially I was merely commenting on the dire straits facing our country, and that largely in response to that I intend to “vote with my feet,” and I believe I also recommended to anyone who thinks similarly, to strongly consider making plans to do the same, and sooner rather than later. I then made a reference to expatriation, more as a play on words than anything, but it actually is a related idea seeing as how I intend to take my money with me, again, at least in part, as a direct result of U.S. monetary and fiscal policies.

    “Should you have a previously written piece, or a future piece, concerning this or a related topic, I would be very interested in reading it.”

    Truthfully, I wasn’t even aware that this tax existed and had assumed Ron Paul was referring to some sort of duplicate income tax when he gave that answer in the debate, although at the time I thought it was a strong answer anyway. This blog will likely be the last online correspondence on this or any other related topic (involving Ron Paul or otherwise) that I will partake in, at least for the foreseeable future, for a few of the reasons I’ve mentioned earlier. In terms of reading material that I believe is clear and convincing enough to radically change any thinking person’s understanding of the world, might I suggest Tom Woods’ latest book Rollback (who I also linked to earlier…and yes it’s relevant to these issues), for which you can read the first chapter for free.

    As in Ron Paul’s last run, I’ve already made the maximum contribution (and I’m by no means rich), can only personally do so much to try to get him elected, and frankly I’m no longer willing to sacrifice anymore than I already have in a cause that to me appears to be next to impossible (at least in the short-term). Ben Franklin wrote, “Where liberty dwells, there is my country,” from which Thomas Paine then modified to proclaim, “Where liberty is not, that is my home.” Personally, I’ve come to realize that Franklin’s expression is the one that I must follow, and that for better or worse, I’m no Tom Paine.

    For Liberty

  • Leroy

    37-clavos is wrong: for the last 30 years we have been dominated by the rightist ideas of Reagan and Co. It is the rightist dismantling of New Deal reforms that is responsible for our dire circumstances. And they are not satisfied and they want to do more, like disassemble Social Security (while turning trillions over to their cohorts on Wall Street).

    ¨The condition of the country (which I agree is dire) is far more a result of liberal social engineering on the part of the federal government over the past 60-70 years than any other single factor.¨

  • Clavos

    clavos is wrong…

    Of course, Leroy.

  • zingzing

    “They’re (the EU countries) all realizing (in part because of the bust) that they bit off more than they can chew in terms of entitlements, and the sooner we realize it too, the sooner we’ll pull ourselves out of this mess.”

    that’s funny. check out the link i put up on the “fixing the fed budjet” thread. it suggests that those states that have increased spending have not suffered as much as those who have cut spending.

    but that would seem pretty simplistic, wouldn’t it? if so, why do you think that what’s happening in the eu is such a simple problem? it’s most certainly not, and there’s no good in pretending it is. it’s foolish, and i know you’re no fool, so there must be a political agenda you’re persuing. that’s a dangerous game to play with a country.

  • Glenn Contrarian

    Clavos –

    Would you care to show us exactly how Reaganomics – deregulation and really low taxes – have improved the lives of Americans? Other than the wealthy, that is.

    I’d really like to hear how it is that Reaganomics has been such a great boon for us main-street Americans, our industrial base (which STARTED its exodus when Reaganomics began), and our jobs.

  • Clavos

    Would you care to show us exactly how Reaganomics – deregulation and really low taxes – have improved the lives of Americans?

    Sure. Read this.

  • Ralph Corsi

    I happened across your blog while doing some research on the repatriation tax. In your discussion, you missed an important point and I can’t accept your premise. What you don’t say is that the profits made in a foreign country by the US corp has already been taxed, albeit at a lower rat than the US since there is only one other country in the world that charges a higher corporate tax rate-Japan-and we know how prosperity has evaded them too. This is an important point. The money has already been taxed by the government in which the corp had been operating, yet you think it quite normal and desirable that it be taxed again because it is moving from one place in the world to another. I am not quite sure why. Further, you accept a utilitarian view, throwing principle aside (freedom to act in one’s own interest), and declare it didn’t really create any jobs the last time the repatriation tax was temporarily reduced (5%), so then, why should we do it? Your premise is clear, if a business does not act in a way you think is best, then laws, and regulations should be implemented or continued to force them to do so. If a business chooses to use its profits in a foreign country or instead in the USA, it is their business. I guess you don’t get that. When I was a kid and overstepped my bounds into the realm of another, I heard a clear retort. “It is none of your business!” I think you need to learn that lesson Jarred. We don’t need the benevolent version of fascism any more than we need the totalitarian form.

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