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It’s Only a Holiday if You Actually Pay Taxes

{complink 2294|Google} is among a number of high-profile tech companies lobbying for a tax holiday to repatriate earnings from offshore. I'm wondering how much of a holiday Google needs from the 2.4 percent tax rate it is currently paying on its overseas earnings.

In October 2010, Yahoo Finance's Economics Editor Daniel Gross wrote an article skewering companies that managed to take advantage of tax breaks while lobbying for US tax reform. Here's an excerpt from the article:

    This is all a little rich—and I’m not talking just about the executives. Yes, a temporary tax holiday might encourage companies to import dollars. After the 2004 Homeland Investment Act offered a special 5.25 percent rate for repatriated profits, 843 companies brought back $362 billion, according to the IRS. But it’s not clear whether the cash was used to hire workers and build plants—or to pay big salaries to top executives.

    Bloomberg’s Jesse Drucker reported in October that do-no-evil Google managed to pay taxes on overseas earnings at a measly 2.4 percent rate by employing strategies that sound like titles of movies you wouldn’t want to catch your teenage son watching: the “Double Irish” and the “Dutch Sandwich.”

    Companies view taxes as either a form of punishment or a system to be gamed to the max. In reality, taxes are the price of citizenship. Large companies like Google are like members of a country club who are content to reap all the benefits of membership—government support for computer-science research, in Google’s case—but who go to great lengths to avoid kicking in for landscaping.

    Take General Electric, whose CFO has advocated for a tax holiday. GE gets huge benefits by virtue of its domicile in Fairfield, Conn. During the financial crisis, its GE Capital unit was a prodigious user of taxpayer-backed debt guarantees. GE’s infrastructure and energy units are major beneficiaries of stimulus funds and programs that assist the construction of alternative-energy facilities. And CEO Jeffrey Immelt will meet in India this month with President Obama, who will push his hosts to import more goods from companies like… GE.

    You would think the company would go out of its way to make sure that the U.S. government has solid funding. You’d think wrong. As Chris Hellman wrote in Forbes earlier this year, “Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam.” In 2009 GE said its nonfinancial business would have owed taxes equal to about 26 percent of its pretax profits. But thanks to the (poor) performance of its financial-services units, GE was able to claim a net $1.09 billion tax benefit for the year.

Google, along with Adobe Systems Inc. (Nasdaq: ADBE), Apple Inc. (Nasdaq: AAPL), Broadcom Corp. (Nasdaq: BRCM), CA Technologies (Nasdaq: CA), Cisco Systems Inc. (Nasdaq: CSCO), EMC Corp. (NYSE: EMC), Microsoft Corp. (Nasdaq: MSFT), Oracle Corp. (Nasdaq: ORCL), and Qualcomm Inc. (Nasdaq: QCOM) are lobbying the US Congress for a tax holiday to repatriate more than $1 trillion in cash outside the country. These funds, they say, can be used to create jobs at home.

I, like my colleague Bolaji Ojo, won't pretend that I know whether this infusion of cash will help, even in the short term. (See: Apple, Cisco, Google, Seek Tax Relief to Repatriate Cash.) But I do know that I keep turning back to Gross's article (referenced in More on Cash Hoarding & the Confidence Crisis), which concludes that the loudest yelps for corporate tax relief come from those who aren’t paying much in the first place.

13 comments on “It’s Only a Holiday if You Actually Pay Taxes

  1. Parser
    March 25, 2011

    After all not paying taxes and keeping money abroad is worst than not paying taxes and keeping money in the US.

  2. elctrnx_lyf
    March 26, 2011

    All the technological companies have the advantage for the global spending to actually lessen the amount of tax. These companies going to the US congress for the tax holiday could help them to save huge amounts of money.

  3. Jay_Bond
    March 27, 2011

    It does seem rather funny that the companies doing the most complaining and wanting the most breaks are already getting some of the best deals around. Granted, their overall tax dollars might be rather high based on their sales, but percentage wise they are paying less than the U.S. consumers are. It is hard to say if this money is brought stateside if it's going to actually produce any jobs and further expand economic recovery.

  4. Kunmi
    March 27, 2011

     Sounds like some of these companies are opportunists. If a company is paying less than 3% of the foreign investments and still asking for breaks. Where would the trust be to convince anyone that if granted, the intended purpose will be achieved

  5. Barbara Jorgensen
    March 28, 2011

    I believe the one-time infusion of cash won't do much to stimulate the economy, anyway. In order to create long-term investment and jobs, the overall tax program has to be rehauled. On paper, the corporate tax rate is something like 35%. In reality, loopholes make it lower. If the US could come to a happy medium, then compnaies wouldn't be so anxious to keep money overseas.

  6. Ariella
    March 28, 2011

    Absolutely, Barbara, it takes more than a  quick shot in the arm to make a real change in the system. 

  7. eemom
    March 28, 2011

    If companies want tax breaks to bring operations back to the US, then they have to somehow prove that the money is being spent according to the deal and not to just show better profits so that upper level management gets a bigger bonus.  I'm not sure who these companies think they are cheating, the US economy is struggling and unemployment is still high.  If we continue going down this path, where will we end up?  How is it fair that the consumer as well as the smaller business gets to pay higher taxes than the company that is hoarding cash while shipping employment overseas.  Who doesn't see the inequity in this formula?

  8. TechnoHound
    March 29, 2011

    This is an excerpt from an article by Bob Herbert in the New York Times

    http://www.nytimes.com/2011/03/26/opinion/26herbert.html

    “A stark example of the fundamental unfairness that is now so widespread was in The New York Times on Friday under the headline: “G.E.’s Strategies Let It Avoid Taxes Altogether.” Despite profits of $14.2 billion — $5.1 billion from its operations in the United States — General Electric did not have to pay any U.S. taxes last year.”

    The CEO of GE will be travelling with President Obama to India soon to talk about opening a new manufacturing facility there. Does anyone really think this tax holiday is going to do more than increase the padding in already fully lined pockets of the privelaged few?

    Why should the wallowing and disappearing middle class shoulder the tax burden of the few who hold >60% of the wealth in the US.

  9. SunitaT
    March 29, 2011

    @Parser,

      But that doesn't mean that companies should bargain for tax holiday to repatriate earnings from offshore. This shows the oppurtunistic nature of the companies. As pointed out in the article Google managed to pay taxes on overseas earnings at a measly 2.4 percent rate by employing strategies. I just wonder if 2.4% is such a big number?

  10. Ms. Daisy
    March 29, 2011

    This is just unfair! I do understand government incentives for large corporations to encourage local investments etc. But these continued breaks for the rich with no tax holidays for ordinary Americans is unacceptable.

  11. Parser
    March 29, 2011

    @tirlapur

    No, I don’t think it is much, but it must be less to pay if they were having that money here. Any private business has one bottom line the profit to stay above in the competition and in business.

    For me taxes are not the point. It is the wealth, which is not reinvested in the US especially during recession. If tax law is the only thing would make them change I am for it. 

  12. stochastic excursion
    March 30, 2011

    Government expenditures and revenues are in need of some adjustment, with many locked-in relief and wartime programs that stagnate the US financial picture.  Corporate grievances about taxes, though, carry zero legitimacy as long as the tax burden on the majority of individuals in this country is not addressed as well.  Companies take their business to foreign lands where their safe passage is guaranteed by not only American's hard-earned money, but the lives of its soldiers.  Then they whine about not getting a free ride, and use the word 'repatriation' like we're supposed to be overjoyed to see them carry their share of the tax burden.  If the people running these companies don't want to make their headquarters in the US, I for one will not be sad to see them change their citizenship entirely.

  13. SP
    March 31, 2011

    These companies really make good business outside US, and if they say they can use that amount to create jobs in US then they probably mean it.

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