Heidi Moore again: Does she actually read her own articles?

Quoting at length just so you know I\’m not manipulating her words:

About $1.7tn of US corporate dollars are sitting overseas, and those companies say they would love to bring it back to the United States. But what they would do with it?

They say they would invest it in the American economy. A New America Foundation study (pdf), co-written by Laura D\’Andrea Tyson,
maintained that companies could use the money for two purposes:

\”They can distribute them to their shareholders in the form of dividend payments and share repurchases; and they can use them directly to fund their domestic economic activities or to reduce their debt.\”

The paper estimated that $581bn in repatriated cash would go to to US shareholders, of which $192bn will go to US households. With the struggling US consumer and 12 million people unemployed, that sounds like a nice boost for the economy. Appealing, right? Companies could spread the wealth, either giving it to stockholders or pumping it into the economy – wouldn\’t that be a nice change from what we hear about the unevenness of the economy, and companies hoarding cash while households struggle?

Unfortunately, it\’s more like wealth redistribution for corporate dummies. History shows us that these promises are not to be trusted.

Companies had a tax holiday once before, in 2004, when a set of major corporations were allowed to bring back their overseas profits at a tax rate of only 5.25%. You might imagine that it resulted in an enormous economic boost, but here\’s what happened instead, in the words of Treasury official Michael Mundaca:

\”There is no evidence that it increased US investment or jobs, and it cost taxpayers billions … the nonpartisan Congressional Research Service reports that most of the largest beneficiaries of the holiday actually cut jobs in 2005-06 – despite overall economy-wide job growth in those years – and many used the repatriated funds simply to repurchase stock or pay dividends.\”

So we tried a tax holiday before, it accomplished nothing except lining some corporate coffers, and it hurt the economy.

No, run through that again.

So, Laura Tyson, real live economist, says that bringing the corporate cash piles home could be a good idea because the money will flow out to shareholders and households in dividends and stock buybacks. Ms. Moore thinks this is a good idea.

The evidence from last time is that the money brought back from the corporate cash piles flowed out to households and shareholders in dividends and stock buybacks.

Ms. Moore takes this as evidence that it all didn\’t work because it worked exactly as advertised, exactly as she herself agrees would be a good idea: the money flowed out to shareholders and households.

Is there some kind of special lobotomy it\’s necessary to get to write about economics for The Guardian?

14 thoughts on “Heidi Moore again: Does she actually read her own articles?”

  1. Should be Heidi Moron.

    Tell me, will Apple have already paid corporation tax on this cash. And if so, surely taxing it again at 35% is extreme. What about double-taxation treaties ?

  2. I think you are misunderstanding her (Moore). I think she is arguing that the dividends and buy backs didn’t boost the economy last time, according to the Treasury, therefore that argument for a tax holiday is not valid. i.e. That Tyson is wrong.

  3. So Much For Subtlety

    So we tried a tax holiday before, it accomplished nothing except lining some corporate coffers, and it hurt the economy.

    I am sorry but economics is not my strong area, so perhaps someone could explain to me what the big difference is between Apple having 4 billion dollars (or whatever) in a bank overseas and Apple having 4 billion dollars in a bank in the US. How does one make Apple richer than the other apart from the rather minor benefit of having your money in the US? How does allowing them to move their money into the US cheaply line their pockets more than not letting them?

  4. From an investor point of view, I dislike share buy-backs. The main reason they exist is simply because the tax system makes them more attractive to companies, esp, those run by people who are largely leveraged to the share price with stock options.

    Getting rid of company tax completely seems like the best way forward. Move the tax to the point of receipt for individuals & shareholders. Given the amount of ignorance there is around company tax however, I simply can’t see that ever happening.

  5. SMFS

    If it’s in the US then they can give it back to the people who own it (shareholders).

    Hence, even though they’ve got billions around the world, they’re having to borrow in the US to fund their latest dividend/buyback thing.

  6. @SMFS
    You persist in seeing money as bundles of notes stuffed in a vault somewhere. Think about what money on deposit in a bank does.

  7. So Much For Subtlety

    The Thought Gang – “If it-s in the US then they can give it back to the people who own it (shareholders).”

    Sure. That is convenient. But suppose that Apple is worth some 5 billion dollars and it has 4 billion dollars in cash in the Caymans. How does that differ from Apple being worth some 5 billion dollars with 4 billion dollars in cash in New York?

    There will be a price advantage to having the cash in the US, but it can hardly be a big one. The silly woman claimed allowing Apple to move from one to the other lined their pockets. How?

    6bloke in spain – “Think about what money on deposit in a bank does.”

    Well it greatly pleases hedge funds I would guess, at least if it is being held in any half way decent off shore institution.

    Presumably Apple’s price includes what people thinks this cash is worth minus all the fuss of bringing it back. If they had an amnesty for people with assets overseas, does anyone really think their share price would jump?

  8. Nicholas Shaxson

    In your Forbes piece on this, you couched all this in these terms: “Which is an argument that I’m afraid that I really don’t follow.” I’m sorry that you can’t follow the argument. But there’s usually a handy way to follow it, though: follow the evidence. I don’t think there are any serious commentators out there who dispute what Moore says. You might try, just for example, the evidence from the CBO. Handily packaged up here to save you time.
    http://www.offthechartsblog.org/cbo-ranks-repatriation-holiday-dead-last-in-job-creation/

  9. @SMFS

    “But suppose that Apple is worth some 5 billion dollars and it has 4 billion dollars in cash in the Caymans. How does that differ from Apple being worth some 5 billion dollars with 4 billion dollars in cash in New York?”

    The value of the company is the value to the shareholders. A dollar in New York is worth a dollar to the shareholders. A dollar in the Caymans is only worth 65c, because it costs 35c to ship it home.

    This only matters if the company can’t get good use of out that dollar where it is, but that’s generally agreed to be the case with Apple. Shareholders want their dollar, and Apple wants to give it to them.

  10. So Much For Subtlety

    The Thought Gang – “A dollar in the Caymans is only worth 65c, because it costs 35c to ship it home.”

    Only if Apple is really stupid. If a company I owned shares in spent that much bringing cash home I would be livid. Apple could hide this sort of transfer any number of ways if they wanted to. They could pay for imports to the US from the Caymans. But the simplest way would surely be to simply buy back their own shares overseas. If Apple is listed in London, what is to stop them transfering that cash to London and buying their own shares there?

    I do not think the ultimate impact of these laws is all that great. But even if it is, letting people have their own cash, which they have earnt, is not lining their pockets. It is justice.

  11. @SMFS:

    Do you not realize that the US has a 35% corporate tax rate? For every that they repatriate that is the US, they would end up holding 65 cents, after corporate tax. They don’t “[spend] that much bringing cash home,” nor do they wish to have more than a third of it confiscated by the IRS…thus, they let it sit–rather unproductively–outside of the US. That shouldn’t be an alien or difficult concept to follow.

  12. The Thought Gang

    @SMFS

    If it was so easy to duck the tax, don’t you think that’s what all the companies with cash ‘stuck’ overseas would do?

    If you have an insight that has alluded every accountant and tax lawyer in the USA then you should probably make some calls, because you’re going to be very very rich, very very soon.

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