Have you noticed the Homa Files fresh, new design?
After 3 years of using the stock WordPress design, I was nudged by family and friends to turn it up a notch.
Thanks to daughter-in-law Jess for the awesome new header … with clean lines, contempo colors and a great image of the Key Bridge leading to Georgetown.
Be sure to notice that there are more information links on the home page … including click thru access to the Homa Notes on the 6 Ps of Marketing.
Onward and upward …
Paul Krugman has won a Nobel prize in Economics … and he teaches at Princeton.
So, he should know what he’s talking about, right?
Not so fast …
Here’s an excerpt from his NYT op-ed rant titled “Corporate Cash Con”
The subject is taxation of repatriated earnings – money that companies make outside the U.S.
Over the last two years profits have soared while unemployment has remained disastrously high.
Why should anyone believe that handing even more money to corporations, no strings attached, would lead to faster job creation?
Consider the repatriation issue.
U.S. corporations are supposed to pay taxes on the profits of their overseas subsidiaries — but only when those profits are transferred back to the parent company.
Now there’s a move afoot to offer an amnesty under which companies could move funds back while paying hardly any taxes.
A similar tax holiday was offered in 2004. And it was a total failure.
Companies did indeed take advantage of the amnesty to move a lot of money back to the United States.
But they used that money to pay dividends, pay down debt, buy up other companies, buy back their own stock.
Indeed, there’s no evidence that the 2004 tax holiday did anything at all to stimulate the economy.
What the tax holiday did do, however, was give big corporations a chance to avoid paying taxes, because they would eventually have repatriated, and paid taxes on, much of the money they brought in under the amnesty.
And it also gave these companies an incentive to move even more jobs overseas, since they now know that there’s a good chance that they’ll be able to bring overseas profits home nearly tax-free under future amnesties.
Corporations already have plenty of cash they’re not using, why would giving them a tax break that adds to this pile of cash do anything to accelerate recovery?
Let’s pick some lint off Prof. Krugman’s argument …
First, he overlooks the fact that companies do, in fact, pay taxes to the locales where the income is booked. It’s not tax-free … but it is usually taxed at rates that are lower than U.S. corporate tax rates … since most countries tax rates are lower.
When earnings are brought back to the U.S., companies are obligated to pay the difference in the tax rates to the U.S. Treasury.
Second, Prof, Krugman argues that low repatriation tax rates are bad because they “give big corporations a chance to avoid paying taxes, because they would eventually have repatriated.”
Au contraire.
In the old days, the U.S. economy was the growth machine. These days, international markets are the growth machines. Think China and India.
The point: in the old days earnings would usually get repatriated for investment in the U.S.
These days, companies have plenty of investment opportunities outside the U.S. They don’t need to repatriate earnings ever.
So, coaxing companies to bring some cash home via a low repatriation rate means that the U.S. Treasury gets some dough. Since tax revenues equals the tax rate times the tax base, if the money stays off-shore, the Treasury gets nothing.
Finally, Krugman rants that companies use repatriated “money to pay dividends, pay down debt, buy up other companies, buy back their own stock.”
Is that a bad thing?
What does Krugman think that people do when they get a dividend check?
My hunch: they spend it … creating demand and stimulating the economy.
I learned that at Princeton, Prof. Krugman.
According to the National Health Care Management Association analysis of 2008 healthcare spending:
The Homa Files 