WNYC's Bob Hennelly is an award-winning investigative journalist. While at WNYC he has reported on a wide gamut of major public policy questions ranging from immigration and homeland security to power outages and utility mergers.
Stucknation: States Broken While Billions Float Off-Shore
Monday, February 28, 2011 - 12:00 AM
America is fraying.
As the states bleed out red ink high unemployment is the new normal. Now public employees are finding that their social contract is up for repeal. Their agreements have their foundations in an America where labor had real leverage.
Now the only leverage that's relevant is the huge tower of federal, state, and municipal debts. Each year hundreds of billions of dollars has to go from taxpayers to their multi-layered governments just to pay the finance charges on past borrowing that in part helped fund past waste and worse.
As we grapple with the stagnant economy, we lay off tens of thousands of public employees like teachers, firefighters, and police officers. Federal budget proposals call for cutting home heating fuel assistance for the poor. States look to cut what they provide the poor through their Medicaid programs.
Meanwhile, American multi-national companies continue to hoard as much as a trillion dollars off-shore from profits they attribute to their foreign subsidiaries overseas. Back in December, the Obama administration got the message that US multi-nationals were not inclined to repatriate that cash into the US economy because of the federal government's 35 percent effective tax rate. They want a tax holiday.
Arthur Cheliotes is President of New York's CWA Local 1180. He thinks the US has already done too much in service of capital interests. He says the huge disparity that has opened up between the nation's wealthiest and middle class makes a real broad-based recovery impossible and proves his point. He says US tax policy has only worked to serve the massive accumulation of wealth in the hands of a few not the well being of the nation.
"When you look at the economic policies of China, Germany, and France, they take care of their own first," said Cheliotes. "While here in the United States, with our massive concentration of wealth at the very top, we don't take care of our own."
Andy Stern is a Senior Fellow at Georgetown Public Policy Institute and the former president of the Service Employees International Union. He thinks it’s wise to induce these corporations to repatriate some of their foreign profits with a tax holiday. Because none of that money is getting taxed now, he said the tax rate could even be lowered to a minimum rate of 5.25 percent on overseas profits, well below the current 35 percent. He wants that new revenue to be put to work here in the United States re-building the nation's aging and dysfunctional infrastructure.
"It could be more than that — but the minimum should be at least 5.25 percent," Stern said. "That would generate at least $40 to 50 billion dollars for opening equity in an infrastructure bank. That in turn could be additionally leveraged into $500 billion,"
Stern said a national infrastructure bank proposal has been developed by Connecticut Democratic Congresswoman Rosa DeLauro, and already has strong support from a broad constituency that includes labor and the the Chamber of Commerce.
Back in 2004, US multi-nationals got the same deal under President Bush. A law called the American Jobs Creation Act created a tax holiday then. It resulted in some $362 billion coming back home to the US and tens of billions in tax revenues.
In the Northwestern Journal of Law and Social Policy, Thomas Brennan published a detailed analysis of how that "holiday" affected the subsequent investment decisions made by more than 70 of the biggest US multi-nationals.
He found that ultimately they went on to invest exponentially more money outside of the United States and stockpiled even more money in foreign earnings overseas. No doubt they would argue that was where they saw the greater opportunities for a higher rate of return and lower tax liabilities.
Brennan said in the short term it got some immediate tax revenue, but in the long run it just reinforced the US multi-nationals behavior of investing and stashing ever larger sums overseas.
"A collateral consequence of substantial proportions, however, is the conditioning of firms to expect future such holidays and to arrange their affairs accordingly," wrote Brennan.
No doubt, as we all become an increasingly threadbare nation of independent contractors, desperate for a day's wage, we all will be more than happy to give them yet another holiday.