Ritchie doesn\’t even understand tax!

So, US corporations have lots of cash. Ritchie says:

As he shows, US non financial corporations have $4.8 trillion in cash – or about $16,000 for everyone in the US.

That’s why they don’t need tax breaks to invest – they already have all the cash they need. They just can’t find anything to do with it. So they’re trying to capture public revenues for private gain instyead because it is the oinpy waty they can think to make money right now.

I have a better idea. Let’s tax them and pout the money to use in the public sector where there is masses to be done. We can be selective – we just need to tax companies with excessive cash. But the impact on recovery and debt would be significant. And that’s why this is a good idea. Why should those without suffer because those with are hiding their cash behind corporate barricades?

Someone who does actually understand what Cay Johnston is talking about (that\’ll be me then) points out that actually, no, we want to lift the tax burden so that the cash gets distributed:

At which point the use of the carrot rather than the stick becomes the obvious move. Simply provide that, for one year only, any and all foreign profits can be brought onshore with no corporate income tax charge. Further, that any such profits brought onshore can be paid out as dividends without incurring a tax charge on the recipients.

Now, of course, we will not get all of that $5 trillion. Let’s imagine that only half of it comes back as US corporations really do need to have some money overseas to finance overseas operations. At which point we can see that there will be a $2.5 trillion stimulus in the US economy. Some 15% of GDP or so. And all of this without increasing the Federal budget deficit or the national debt by even one penny. A huge, massive (it’s near three times the size of Obama’s previous attempt at stimulus) boost to the domestic economy at pretty much no cost. All we’ve got to do is agree not to tax something that we’re not going to be able to tax anyway.

We’ll move some trillions of dollars from unproductive overseas accounts into the hands of individual investors here inside the US. They will then either spend or invest it. Sounds pretty stimulative to me and I really cannot see why anyone would oppose it. A 15% of GDP stimulus at zero cost: what’s not to like?

Less tax, not more, is the solution to this particular problem.

25 thoughts on “Ritchie doesn\’t even understand tax!”

  1. I don’t frankly think that tinkering with tax regimes would make much difference. There is a general risk-off attitude across the developed world at the moment from businesses, banks and households alike. It’s a self-reinforcing doom loop.

  2. Tim

    I was very surprised you hadn’t yet seen this particular entry. My tentative comment on Ritchie’s own blog ( I have managed to get Past the moderation policy for the first time ever on another thread) was that the mere threat of a tax would simply be a boon for Small aircraft manufacturers, high end automotive manufacturers and yacht makers,as the corporations thus threatened would simply spend the money on vanity projects.

    Superb Forbes blog, and I fully agree this (incentivising rather than taxing) would garner much more benefit than a windfall tax. What it wouldn’t do, however, is extend the state’s control over the money, so to an extreme statist like Murphy it’s anathema.

  3. What’s not to like? Well, since this is such a good idea, I suppose that we’d want to repeat it, say once every four years, the electoral calendar being what it is.

    Ah, I think I see a problem. Companies will keep pretty well everything offshore for three years out of four. They need never pay tax again.

    Regular amnesties destroy tax revenues. Irregular amnesties create a game which we’d really prefer not to spend resources on.

    I suspect you’d prefer to abolish corporation tax altogether. I think there’s a good case for a much smaller tax…

  4. “I suspect you’d prefer to abolish corporation tax altogether”

    From his previous posts on the subject, I think Tim would say that there’s no such thing as corporation tax anyway. Corporations don’t pay tax, individuals do – indirectly.

  5. PaulB, the money off-shore is producing no tax at the moment, so the choice is between no tax or no tax. Tuff choice.

  6. The problem is the USA rate of tax is too high in general. The overseas money has already been taxed in the overseas location. Let us say in Mexico where the headline corporate rate is 30%. Now essentially you get a credit of tax already paid, and have to make up the difference to the USA rate of 35%. So an extra 5% would be charged on this income brought back. Now with the USA having the highest corporate tax rate in the developed world http://www.huffingtonpost.com/2012/03/30/us-corporate-tax-rate_n_1392310.html
    and indeed anywhere – there is almost always going to be more tax to pay on repatriated US earnings. So there is no way a US company would bring the earnings back without either a lower rate around the OECD average or a one off holiday. Why would you pay more when as a multinational you can just leave the earnings/cash overseas and deploy it elsewhere in your overseas operations?

  7. Sorry – did not mean to say “and indeed anywhere”, rather “almost anywhere”. Anywhere decent that is…

  8. So as the problem is caused by too high a tax rate…Ritchie’s solution of effectively and even higher tax rate must be mentally challenged.

  9. I think you are all missing the point slightly. If low tax or tax-free repatriation is allowed then non-government types will be allowed to choose what to spend their money on. This is simply not acceptable in Ritchie-world.

    The only way to ensure that money is properly spent is to ensure that the vast majority of it is doled out by the beneficient masters of the establishment. Us peons can only be allowed a little pocket money through the benefit system (or the meagre remains after we are taxed until we squeak!) Although as well as taxed on receipt, we need to be taxed on spending (multiple times), on our savings and on death. Just to ensure we know our place in the world.

  10. Eddy: sorry, I should have used shorter words, I’ll try again:

    If you tell people they will one day be able to bring money onshore free of tax, they will send more money off shore.

    Tim adds: But Paul, that ain’t the US situation. Which is that US domiciled corporations have been expanding overseas these past decades. Profits not in the US have been made. As long as they don’t take them into the US then they don’t pay the 35% profit tax.

    So, US domiciled corporations are not taking their non US profits back into the US.

    What we’re interested in is, well, what would make them do so?

    Here is the idiocy of your statement: “they will send more money off shore.”

    Ain’t what is under discussion. What is is, say, Apple designs in the US, manufactures in China, sells in Germany. Makes vast profits by doing so. OK, how do we get those vast profits back into the US economy?

    By not taxing them offshore? No. By allowing them to come onshore without tax? That’ll work.

    And absolutely none of this is about offshoring of profits.

  11. Remember, all money belongs to the State. The private sector is only allowed enough scraps to keep it alive, no more. If the private sector has spare cash lying around then obviously the State has been too generous with its scraps, so it must increase taxes to reduce the volume and quality of leftovers – otherwise the private sector might get uppity and start demanding “More!” It’s the Oliver Twist school of economics.

  12. PaulB, do you suppose that being gratuitously rude compensates for the intellectual paucity of your arguments?

  13. Tim: Corporations are quite capable of organizing their affairs to make the profits appear in whichever country is most advantageous, transfer pricing rules notwithstanding. If I understand you right, you think it entirely proper for them to do that. But currently there’s no point in it if you want to distribute the profits in the USA. An amnesty would change that.

    The right thing to do with a bad tax is change or abolish it, not add further distortions by declaring amnesties.

    RA: Thank you for keeping my golden prose alive. If I ever should find myself advancing an intellectually impoverished argument I’ll give your question due consideration.

    I confess that my reply to Eddy lapsed somewhat from my customary politesse . But there was nothing gratuitous about it.

  14. I find it incredible that worstall can say this:

    “Someone who does actually understand what is [being] talking about (that’ll be me then)”

    when taking his entire raison d’etre,can’t see how utterly anti-libertarian he really is.

    The ultimate conclusion to your ridiculous ideology can only result in this:

    A few mega corps controlling production, supply and distribution of essentials (see the agri-stats)

    The regulatory capture of democratically chosen pulic representation (see banks)

    The annihilation of small entrepreneurs through image protection vehicles (based in secrecy jurisdictions)

    The reduction of consumer choice (olympics?)

    The ultimate control of all forms of media services.

    The profligate corruption, an entire lack of corporate best practice, the elevation of failed business men into the UK legislation making

    and the complete disassociation of the individual from society.

    That’s what your twisted ideology hopes for. A few people who are no better than anyone else on any meritocratic principle dictating how individuals spend their cash and installing the belief that these guys know best because they have destroyed all competition and so are the winners in Social Darwinism

    It’s understood that this post is not directly associated with worstalls nonsense above, but the overall outcomes are clear.

    Libertarians support the wealthy to gain more political power in order to further their commercial interests.

    That is a frankly totalitarian extremist end point.

    You don’t know anything about reality. You think like an abacus.

    PS, i’ll include a FUCK for the witty contributors who have learned how to copy and paste from equally sarcastic nobodies.

    One day you will look back at all these wasted years of puerilityand maybe get an education learning how real life works.

    And supporting agressive tax avoidance and lauding the notion that tax should legitmately be classed as theft, constantly bleating to the very few folk who basically copy you, makes you a destructive anti-entrepreneur, probably with enough connections that you couldn’t give a toss.

    I look forward to some pathetically argued responses, borne of a blind quasi-religious adoration of unregulated, uncompetitive monopolies that suck money out of the real socio-economic evolving Humanity, placing the cash within untraceable and unresolvable legal and financial operations within the UKs (yeah UKIP! Let’s defend corruption!) web of secrecy jurisdictions – maybe involving a few more lax US or Chinese brass plate nominees to firther screw things up for the individual trying to find jobs, start businesses or lead a productive, liberal existence

    march on towards the banana republic

  15. Libertarians support the wealthy to gain more political power in order to further their commercial interests.

    I know Arnald comes out with some appalling distortions of reality but this one is ridiculous.

    A few people who are no better than anyone else on any meritocratic principle dictating how individuals spend their cash …

    Yup, that’s what your hero wants. A cabal of like-un-minded fools deciding that they can spend our money better than we can.

    or lead a productive, liberal existence

    Well, you’ve managed one out of the three?

  16. PaulB is right here. The issue with tax-free repatriation isn’t the one-off action, it’s the signals it sends about future government behaviour.

    If Arnald came to power and introduced a 100% retrospective tax on all income over gbp30k, then the immediate impact would be that he would raise a great deal of money. The long term impact, obviously, would be some combination of emigration, shirking and revolution, as we reached one of the two points on the Laffer curve that everyone agrees exists.

    Similarly, the one-off impact of the tax holiday would indeed be a massive cash inflow from foreign subsidiaries to US shareholders. But the long term impact would be that US companies would assume they would always be able to benefit from such a tax holiday, would keep all profits overseas, would never pay US tax on them, and would only remit them to shareholders at the time of the next tax holiday. The liquidity situation would become even worse (since at the moment, *some* proportion of foreign earnings each year are remitted and taxed).

    So the long run impact of doing this would be 1) effectively abolishing corporation tax on overseas income; while also 2) exacerbating the original problem of overseas income not being remitted. Score, not.

    Tim adds: Two points.

    1) We’re already in the second iteration of this story. There was an amnesty some years ago.

    2) But everyone agrees that the US is stuck in a trap and requires a huge bolus of cash flooding into the economy to get it moving. Here’s a way to get it at zero cost.

  17. Does Arnald (#17) know that his examples of the evils of a libertarian economy are actually the most government-controlled sectors?

    Agriculture, banks, IP, the Olympics, media.

    All heavily licenced, regulated and most heavily subsidised by the politicians.

    Not surprising that those sectors are the most screwed-up ones, but how on God’s green earth does he manage to blame unbridled libertarian capitalism?

  18. In fairness, mainstream self-identified right-libertarians tend to be very keen on putting themselves forward to defend the banking and IP law status quo. Even though, as you say, a true libertarian would massively reform and diminish the power both.

  19. Does Richard (#up some cloud cuckoo’s arse) know why the state subsidises the corps that suck the blood from the real economy? Does it know ho controls the vast majority of those examples it has foolishly cited?

    Most of you lot, and worstall is one of the worst, claim to be libertarians, when the reality is they want to give more powers to those that already dictate the power and capture regulation in their favour, and so crush the true ‘wealth creators’ that provide jobs and social cohesion.

    Whereas, and this what your limited minds fail to grasp, a more statist social democracy would curb the advantages of the already rich and market monopolists, and create infrastructure for more social and community enhancing industry.

    That’s advancement.

    Not the abandonment of the majority (hoping for some mass extermination of the unsuccessful and therefore genetically deficient) in order to create evver more trinkets in greater numbers until all individuality is under the control of some fat expat who only has to sneeze to get his laws into his nominee wife’s g-string special purpose ‘vehicle’.

    Your pretend libertarianism is a sham, ill thought out, shambolically pieced together from discredited and empirically failed social experimental , but with ‘friends’ and ‘funding’ in the right places to shout a fervent quasi-religious mantra with enough money left over to hand out sweeties and flags to confused passers-by who would be horrified if they knew quite how vile it all is.

  20. I haven’t got a clue what Arnald is saying. Might as well be saying it in Serbo-Croat as it would make as much sense.

    Never mind Arnald. Nursey will be soon be round with your medication.

    Very worrying to think that such a twat is employed by the Guernsey Housing Association. Must be fun in that office huh?

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