Pirates of the Caribbean alert: Offshore corporate cash hoard

July 8, 2011

Paging Captain Jack Sparrow. The modern equivalent of pirate treasure islands is holding some $1 trillion of corporate cash by U.S. corporations.

The reason is simple: U.S. corporations don’t have to pay U.S. taxes on the money when it’s sitting in offshore banks. They can defer taxes indefinitely.

While domestic corporations are free to enjoy the many benefits of American infrastructure, the money they offshore isn’t doing North Americans any good. Bring the money back to create jobs and give corporations a reduced tax rate if they do so. It will also trim the U.S. budget deficit.

One tack that doesn’t work for the middle class is to give corporations another no-strings-attached break for just bringing the money back. Companies shouldn’t be rewarded for being forced to do the right thing. It’s like paying a bonus to get a driver’s license.

Besides, the repatriation break has been tried and was a bust. “A `tax holiday’ on repatriated funds is a proven failure,” writes William Gale and Benjamin Harris of the non-partisan Tax Policy Center. “It was already tried in 2004 and it didn’t work.”

The last $312 billion tax holiday was a bonanza for corporate shareholders that resulted in little or no North American investment and almost no job creation.   “Even firms that showed some evidence of being financially constrained or that explicitly lobbied for the tax holiday did not increase domestic investment, domestic employment or R&D,” wrote three researchers for the National Bureau for Economic Research last year.

Of course, the concept of offshoring capital is nothing new in the world of multi-national corporations. For years they have trundled their money where the taxes and transparency are the lowest.

Has the irony eluded corporate privateers that they earn most of their money in wealthy countries with high infrastructure costs then “bury” it in subsidiaries and banks on mostly small, sparsely-populated islands in the Caribbean like Antigua, Cayman and Virgin Islands? Blackbeard had nothing on corporate treasurers.

Of the $1 trillion that’s believed to be offshored, about $400 billion of that was moved out of the U.S. by financial services corporations — the same ones that already benefited from a king’s ransom of a bailout in 2008.

Citigroup, Morgan Stanley and Bank of America had more than 800 offshore tax havens in 2008, according to a U.S. General Accountability Office study. The list goes on and includes brand-name companies like Apple, Google, Microsoft and Procter and Gamble.

It’s not hard to make the argument that these companies are ethically challenged when it comes to corporate citizenship. They are not creating many jobs and sitting on monumental cash hoards in an era of double-digit unemployment in most cities — when you include young people and those who have given up looking for work.

Tax-buccaneering corporations are not only stiffing their country and communities they serve, they are also shortchanging their shareholders.

At the very least, if they are not investing in human capital or research & development, cash-rich corporations should cut some reasonable dividend checks to their loyal stock owners. There are plenty of older investors who could use the quarterly bump up since they are earning nothing from government-insured savings products after inflation and taxes.

Still, the financial dilemma looms: If you’re a corporate CEO, there’s no way you’re going to voluntarily take a full hit on taxes if you repatriate profits. You’re going to use all the political muscle at your disposal to avoid that situation.

One way of allowing a corporate tax break would be to create a national infrastructure bank in the U.S.

Corporations that contribute to the bank would get a write-off. It would be similar to getting a tax break on a charitable donation. That’s the proposal of Reed Hundt of the Coalition for Green Capital and Thomas Mann of the Brookings Institution.

I would take this repatriation plan one step further. In addition to funding things like bridges and water plants, also set aside money for public education.  Education is infrastructure in a much more profound way than a highway. Hobbled by the housing recession and lower tax receipts, local school districts and state colleges are forced to lay off staff and cut budgets, yet receive a paltry amount of money from the federal government.

Let’s bring corporate booty created by tax-paying Americans back from  sun-soaked tax havens to fund our future. Congress can wield a lot of shovels to fix this problem.


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Bring the loot back onshore and distribute it to shareholders, so they can go and spend it which will in turn re-invigorate the economy (hopefully). Multi-nationals need to step up play their part.

Posted by plubber | Report as abusive

More media garbage. Corporations are not doing anything illegal, immoral or wrong. They are doing what they are supposed to do which is create profits for shareholders. The problem is still government overspending and approximately 45% of the population not paying any taxes. Fix the real problem here and quit blaming corporate america.

Posted by Andrew150 | Report as abusive

The problem is that these are definitely not “domestic” corporations. Our laws about what is an “American” corporation are bad and getting worse. The bill of rights applies to corporations? What utter nonsense.

How much of the offshore hoard was Federal stimulus money? Playing stupid games with the words “American” and “our” harms the American people. Foreign and multinational corporations should be distinguished from “domestic” ones, especially for the purposes of distributions of USA Government funds, contracts, and tax benefits.

Posted by txgadfly | Report as abusive

When a multi-billion dollar company makes a multi-billion dollar profit, but pays no income tax, then a small business makes $40,000 and has to pay $6,000 in income tax, there is a problem. When the rich and the poor are not paying, the middle gets stuck with the bill. It is not about soaking the rich for money, it is about the rich paying their fair share.

Congress needs to figure out a way to tax these moneys, and we need to challenge these ethically challanged companies into doing the right thing.

And Andrew150, if you really think that corporation s are not doing anything illlegal, immoral, or wrong, then you obviously have never worked for, or with one of them. I have yet to see a fortune 500 company that is not challenged when it comes to ethical, moral, or legal issues. Every company is the same, they just think they can throw money at the problem, pay a few bribes (er, contribut to campaigns), and the problem will go away. Did that work with BP, Enron, Worldcom, et al? Corporations are monolithic greed machines, bent on making money any way they can, even if that includes breaking the law. So long as they make more money than it costs, to hell with the consequences.

Posted by neeros | Report as abusive

Andrew 150: Not “More media garbage”. “Corporations are not doing anything illegal, immoral or wrong”; i agree they are doing what they are supposed to do which is create profits for shareholders. The problem is still government overspending resources that they should get from the profits that fat cats make and also collect taxes from the approximately 45% of the population not paying any taxes;(mind you collect taxes from people who have the money to pay).Yea, Fix the real problem here which is enhance your revenue streams rather than
blame union workers and the media. Layoffs don’t help the economy either.

Posted by loiters21 | Report as abusive

Andrew 150 possibly never worked for people like Enron et al.It is conceivable he is one of the big multinationals’
principal or might possibly be a hack for one of them.Eiother way, he is most probably unaware of the sufferings endured by people who are suffering due to governmental deference to the big money cats.

Posted by loiters21 | Report as abusive

What is not explained here in this article is that for many of these corporations the source of off-shore income has not been foreign operations, but clever legal-accounting restructuring that shifts corporate assets from US domicile to off-shore tax haven.

For example, pharmaceuticals and tech companies make billions in patents each year. To avoid taxes on these patents, they “sell” the patents to an off-shore holding company where all revenues are booked – including revenues actually received and paid inside the USA.

Job growth in the USA is NOT with multinationals, it is with companies of fewer than 100 employees. That has been the source of job growth for the past 25 years. Yet, look at the tax code. It only benefits the large multinational.

If there is ever a case for a flat tax, it is in the corporate tax world.

Posted by Acetracy | Report as abusive

And yet, dumb working and middle class Americans will defend corporate profits and the “free” market economy because they think it’s the American way. Well, it’s not–it’s the greedy way and has nothing to do with democracy. In fact, it undermines democracy (all created equal) by ratcheting up inequality. Capitalism is inequality on steroids. And one wouldn’t even begrudge those crooks the profits if they had earned them fair and square, and then paid their fair share of taxes. But when they rig the stock market, short commodities and push insider trading, then take subsidies from the government and stash the cash overseas–well, anyone who thinks that’s legal and moral is just plain ignorant. Americans should stop pointing their finger only at government, because it’s the corporate world that’s robbing us blind and paying of the politicians. It’s a twofer–we have to go after both of them.

Posted by cautious123 | Report as abusive

What no one has mentioned is that this tax loophole is a major player in causing US jobs to be shipped out of the country. The money can’t be used to build factories, etc., in the US, but can be (and is) used to build factories in China and other countries.

A change in the law is needed for many reasons, but our politicians are not problem solvers their careers depend on keeping issues alive not fixing them.

I suggest that any corporation whose US payroll, AS MEASURED BY SOCIAL SECURITY TAX BASE, decreases loses the loophole for not only that tax year but some percentage (say 50%) of all untaxed prior years offshore earnings. Why social security based? Otherwise they will just throw hundreds of millions at the CEO (who unlike the worker bees, won’t pay social security tax on the $). Note that as long a company is not shipping jobs overseas, they get to keep the status quo. However, they will pay a significant penalty to ship US jobs overseas.

Posted by QuietThinker | Report as abusive

Andrew150: the 45% of the population you claim pay no taxes do indeed pay taxes. They pay sales tax, property tax, FICA tax, FUTA tax, Medicare tax, to name a few. Those taxes add up real quick.

And so what if they don’t pay income taxes? Neither do many of the rich. And when they do pay income tax, it’s at a reduced rate on their investment income, especially capital gains. Nor do they pay sales tax on the services they use, such as legal, estate, and tax planning.

When you speak of garbage, take a long look in the mirror.

Posted by Gaius_Baltar | Report as abusive

Gaius_Baltar….your comment about the poor paying taxes is laughable at best.

For instance, my sister in law who is in the bottom tax bracket paid no income tax…AND got a $6000 tax RETURN.

There were NO TAXES PAID. Anything she did pay into FICA FUTA Medicare…etc was handed back to her in the form of WELFARE.

Get back in the garbage can.

Posted by TonyTT | Report as abusive

@ Andrew150: Yeah, what they said. You are co-opted, or blind.

If your business is domiciled in the U.S., or licensed to do business here, and you earn profits on your operations in the U.S., then you should be subject to the same taxation as the Mom & Pop upholstery shop down the street. Period. The accounting and tax regulations that permit the shifting of such profits to offshore holding companies were written by the corporations themselves, and must be eliminated.

The corporations want to complain about excessive regulation? (snort) Fine. Let’s get rid of them. Starting with the loopholes, exemptions, subsidies and accounting shenanigans.

Posted by BowMtnSpirit | Report as abusive

I think Andrew is probably a 1st year business student. He will learn.. hopefully before it’s too late.

Posted by hellomyman | Report as abusive

Andrew150 is right on this one… business student or not. Corporations are doing what they are supposed to do… and for the most part following the laws that govern them, including how they are taxed. I’ve worked for 5 Fortune 100 corporations and each had a complete legal and financial staff backed by a external auditing company to keep them on the straight and narrow. Only Congress can make laws. Don’t like their laws? Change Congress. There are 500 people in Washington, D.C. who are responsible for our budget, our taxes, our laws and how they are enforced. We might wish that corporations were altruistic entities who look beyond their shareholders but in reality they are just like the rest of us; mostly following the rules in pursuit of profit. Two things are sure: There is virtually nothing we can directly do to change corporations. There is plenty we can do to change Congress. Every tax you pay is due to Congress. Every tax a corporation doesn’t pay is due to Congress. I hope you don’t like what Congress has done in the past. I hope you don’t like it so much that you tell them so at every opportunity. I hope you get yourself and two of your friends who don’t vote to review the record of each of your representatives and senators, being mindful of the real issues… and of the Constitution… and vote accordingly in the next and and all subsequent elections. That’s how it works in a republic. Anything else is just whining.

Posted by Akatengu | Report as abusive

America charges corporations at a much higher tax rate than other countries do. That’s why the American companies flee America. If you want to change that, lower the tax rate here and they will come back.

Writing a column on this subject without discussing the tax rates of America vs. other countries was pretty irresponsible and biased. Even if you hate corporations, you should bring the facts to light.

Posted by NewsLady | Report as abusive

Some other country can just invade those islands and assume ownership of the loot…..that simple! Finders keepers! I’m sure by the time our jet fighters etc get there the money would be gone.

Posted by kusangba1980 | Report as abusive

It’s just part of Reagan’s trickle down economy. Give all the money to directions and mega corporations and trust them to let it trickle down to the middle class. What really happened the rich and the mega corporations just said oh look we get to keep all the money.
real simple you want to deal with america you want to sell in american markets you open your books up and pay taxes on profits. Don’t want to do that no problem what you’re going to sell in america for 50 bucks go sell in china for 10 cents.
The real problem is democrats and republicans are in bed with big business. At the expense of the ever diminishing middle class. Don’t worry bolth democrats and republicans as well is corporate america are laughing behind closed doors….

Posted by EN3 | Report as abusive

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[…] Offshore corporate cash hoard John Wasik […]

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Posted by The Medium is the Message: Sid Harth | Bookle+ | Report as abusive

This is a real simple problem. Tax corporations on all the money they make worldwide if they are based in this country. That would have to be determined by where their owners live, not other things. There needs to be a list of these corporations so that if these banks offshore all of a sudden decide to ‘nationalize’ their holdings that we should not help them. If there is a war we should also not help these companies if they get in harms way.
Many companies today are either trans national or international in scope. If their headquarters is here they should be taxed here, even for the money that they don’t bring back. They need to be taxed for all the money they make worldwide if they are located here. That way they could keep all the money that they wanted offshore, but our country would not be hurt. Next, when they threaten to leave, which they are won’t to do, let them leave, lock, stock, and barrel. That would be similar to treason – threatening the US. Unfortunately there is so much corruption today that everybody has been paid off so that these corporations can do what they want. They also need to be taxed for each job that they move offshore and taxed with excise and tariffs for any products that they bring in and sell for inflated figures. For 25 cents an hour they can produce a lot of this junk in Wal-Mart that should be priced at 75 cents, not 75 dollars. Our government pretends to care for the people but the fact is both parties are in the pockets of the corporations and the rich people that own them!

Posted by builder7 | Report as abusive

[…] X […]

Posted by Ah, The Slate, The Slate. | freedmania | Report as abusive

@NewsLady said “Even if you hate corporations, you should bring the facts to light” I wholeheartedly agree. So let’s have a look at the facts since they are available to all of us now. We’ll start by assessing your opening statement “America charges corporations at a much higher tax rate than other countries do”. This is, unfortunately, not supported by those facts you were so eager to see. Had you said something like “America has a higher national statutory corporate tax rate than any other developed country” you could have slid by, and this is probably how the people that you got the information from managed to keep this a factual statement (I’m guessing Fox News or perhaps another of Mr. Murdochs venerable media outlets). If you just remove the word “national” from that statement then you find that Japan actually has a slightly higher combined statutory rate than the U.S.. This would not be a significant issue since the rates are very close (39.5% in Japan vs. 39.2% in the U.S.). However, if you remove the word “statutory” all bets are off as it completely changes the picture. You specifically used the word “charges” which would imply that you are referring to the rates that corporations actually have to pay, or the effective rates. This is actually a much more useful way to look at the issue since statutory rates are essentially meaningless because very few actually pay them. So what do the facts say about effective corporate tax rates? Unfortunately, data on effective rates is not easy to find and is highly variable due to one of the same reasons that effective rates differ so dramatically from statutory rates, it all depends on how you calculate profits and what deductions you allow. Anyone who thinks this should be easy has obviously never dealt with the financials of a large multinational corporation, leave it to say that it’s just not simple and probably never will be. So where does that leave us? The most useful way to assess how much a country taxes it’s corporations relative to other countries is by looking at the amount of taxes they collect from corporations as a percentage of their GDP. It’s important to point out that this is not and should not be viewed as a tax rate of any sort, neither statutory nor effective. It is simply a measure of how much corporations are taxed relative to the overall size of the countries economy. When compared to other developed countries (OECD 2008, the last year data was available for all countries) using this measure the U.S. comes in dead last, lowest that is, at 1.8% of GDP. The highest 5 are Norway (12.5), Australia (5.9), Luxembourg (5.1), New Zealand (4.4) and South Korea (4.2), all countries that have done quite well through the downturn. The bottom 5 are the U.S. (1.8), Germany (1.9), Iceland (1.9), Austria (2.5) and Greece (2.5) all of which have had lower GDP growth (2003 – 2010) than the worst of the five highest corporate tax collectors mentioned above. All of this is just more evidence that corporate tax rates, or any tax rates for that matter when held within a rather large range between 25% and 50% of GDP total are not very useful in determing the economic success or failure of a nation. Within that range it’s just not all that important how much a country collects in taxes. What is important is how they spend it.

Posted by jtfane | Report as abusive

Tax rates are best defined as taxes collected as a percentage of income. On that basis, American taxes on corporations are low, which is why we have more of them than a dog has fleas. And they are just about as pleasant. The worst part of corporations in the USA is that we let foreign and multi-national corprations hide among our domestic ones. So we tax the working poor, hand the money to a corporation with an NYC address, which sends the money to China to expand production for export to the USA. And then we “pretend” to be confused about why US employment goes down rather than up. And send more money to the same corporation to increase “stimulus”. Over $2 trillion of this fraud and more on the way.

And then we let those same corporations control the Government by unlimited contributions to the top two candidates in all important elections! Most places they call that “bribery” rather than “campaign contribution”.

Posted by txgadfly | Report as abusive

Ok, so the law is flawed. How do you get corporations to pay their “fair share” and not slip through the sieve of numerous loopholes, exemptions and allowances? Why do they get a disproportionate number of breaks? What do they owe to the country in which they are headquartered? Should they be considered “persons” under US court rulings? I think they should be considered as conduits of capital. If you want to retain and channel that capital, you’ll need laws that don’t allow the biggest and most powerful corporations to pay low “effective” rates. Sure, let’s overhaul the tax code, but let’s do it in a progressive way that serves the best interests of a broad-based society.

Posted by johnwasik | Report as abusive

“Corporations are doing what they are supposed to do… and for the most part following the laws that govern them, including how they are taxed” – is that a joke? how are exactly shareholders benefiting from that hoard? The only ones happy about it are folks in executive boards which probably have a minuscule %, but get to toy around with all that cash. The shareholders get nothing since there’s no access to that cash.
The board gets the right to bribe right, left and center(sorry, “lobby”) and probably help themselves too in the process.

Posted by sw12 | Report as abusive

johnwasik – have you ever thought that the curent “progressive taxation” plan is part of the problem? Why not just have a (lower)flat tax with no loopholes or deductions whatever, everyone pays the same rate which is fair, (the more you make the more you pay) and no one has any incentives for all the shenanigans that go on today with tax avoidance. We would save billions on tax preparation time and effort alone!

Posted by zotdoc | Report as abusive

What ever happened to taking care of your own country and doing the right thing. I guess there is no loyalty anymore, only to the great US dollar.

Posted by cheeze | Report as abusive

John Wasik, please get your facts right. The money most corporations have parked outside the US is what has been made as profits outside the US. They park it outside so that they can invest it in their operations outside the US.

I run a small company that does business in many countries. US has the most draconian tax laws governing international business operations. Look up US tax rules around terms like CFC(controlled foreign corporations), Subchapter-F income and Foreign Holding Companies. It is hard to not breach a rule and do business outside the US as a US company. Small companies like ours spend a huge chunk of revenue on lawyers to navigate this maze.

As an example, if one subsidiary does business with another subsidiary by doing a simple stock transfer, that triggers taxes in the US even if no money came in to the US. There are myriads of deemed taxes for me as an owner just because the international subsidiary made some passive income.

We need to simplify this maze for our companies if we seriously want to benefit from emerging economies and create jobs in the US. Simply beating up US companies as a convenient punching bag will not get us there. No company wants to be written up like this.

Posted by Agyat | Report as abusive

More of the same…the rich get richer and the poor and middle class who cannot afford offshore shelters shoulder America’s burden…and get poorer.

The poor and middle class pay for the military and the infrastructure that holds America together.

The Rich? They pay for Republicans.

Posted by NobleKin | Report as abusive

Most Republics have honest elections, with honest districts, and honest parties that stand for different things. Corruption is possible in Republics too. Take a look at the USA. Bad elections, grossly inadequate representation, corrupt courts enforcing corrupt laws. And a system centrally structured on payoffs — call them “campaign contributions” or call them bribes. When the money goes to both candidates in an election, it is not “free speech” but a bribe, pure and simple. American elections are for sale.

Why would people be bound by claims of an unrepresentative, corrupt system?

Posted by txgadfly | Report as abusive

I have no argument with the fact that US tax laws are complicated and byzantine. They should be simplified so that more money flows into the US Treasury, which is antithetical to what corporations want to do. Right now, though, corporations have a disproportionate number of tax loopholes that allows them to avoid paying taxes. That needs to be fixed.

Posted by johnwasik | Report as abusive

[…] corporations are now clamoring for importing some of the $1 trillion being held in foreign banks to the US with a tax holiday.But those moneys will be used for mergers and acquisitions, dividend payments, and stock buy backs […]

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