The Vodafone/Verizon Deal Shows Why The US Needs A Profit Repatriations Vacation
To put the problem simply: US corporations have a vast amount of money stashed outside the US. This is because foreign profits only get taxed in the US when they come into the US. To avoid such tax the profits are kept outside the US: one of those sorts of things that you can pretty much predict will happen. The sums are large: $1.7 trillion is one generally accepted number.
One solution to this would simply be to say that foreign profits won’t be taxed by Uncle Sam. Another might be that we’ll have a special tax break for one year to encourage people to move the money back. The argument that is used against that idea is that we’ve already done that in the past. And the result was :
Abram Brown 
For Vodafone, Fat Dividend From Verizon Wireless Dulls Pain But Raises Pressure 
Steve Schaefer Forbes Staff 
Tim Worstall Contributor Repatriations did not lead to an increase in domestic investment, employment or R&D — even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained. Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders. These results suggest that the domestic operations of U.S. multinationals were not financially constrained and that these firms were reasonably well-governed.
My reaction to that finding has always been, well, that’s just great! But apparently I’m distinctly out of step with everyone else. Because this is taken as proof that the tax vacation should not happen. Which is odd when you look at the Vodafone deal :
In a conference call with reporters in order to answer questions on the sale, Vodafone Chief Executive Vittorio Colao said that the company will not be making any major acquisitions, and will instead be following a “balanced approach”. So, instead of any major moves, Vodafone is planning to return $84 billion of the Verizon cash and stock to Vodafone shareholders.
Now not all Vodafone stock is owned by people in the UK but that $84 billion is equivalent to about 3% of UK GDP. Which will be a very nice little macroeconomic boost to the UK economy. Yes, it’s absolutely true that the company will pay no tax on it. But the shareholders will pay some tax on what they receive and that will be a nice little boost to the Treasury coffers. And the recipients of the special dividend have only two things they can do with the cash they receive. They can spend it, which is a nice little Keynesian boost to aggregate demand, or they can invest it anew in other adventures. Which means that, while the company won’t be investing it some companies somewhere will be.
All of which seems like a series of highly desirable outcomes. Which is why I’m so confused about why people oppose a profit repatriations vacation in the US. This will have exactly the same effect. Some goodly portion of that $1.7 trillion will come back and will be paid out to shareholders. The Treasury will get the income tax on that, then the remainder will either be spent or reinvested. Tax income, a boost to aggregate demand and also an increase in domestic investment: what’s not to like about this picture?
I’m sorry but I just don’t see why anyone is opposing the idea.
NASDAQ DIP and RIP
Here is the best word that describes what i do here.
Intuitive;
means having the ability to understand or know something without any direct evidence or reasoning process.
I was born with it, I'm truly blessed!
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