Tag Archives: Politics

How is Foreign Tax Repatriation Different than Immigration Amnesty?

As politicians in DC lurch toward some sort of bipartisan approach to immigration, conservatives remain adamant that immigrants currently in the country illegally be given no path to citizenship. These conservatives see no reason to reward lawbreakers with citizenship, and worry about the message that will send to future immigrants: if you come here illegally and stay long enough, you will get away with it. I understand this perspective; amnesty reeks of moral hazard. I think that realistically, we need to find a path anyway – we can’t just deport 11million people, many of them employed and embedded in society. But I do very much appreciate the concerns of conservatives on this issue.

However, at the same time, the same conservatives are calling for a tax holiday that will let US companies repatriate their offshore cash at reduced tax rates. Under current law, companies can keep their overseas profits in low tax countries, but if they try to bring that cash back home, they have to pay higher US taxes. In 2004 companies were granted a one-time holiday, with tax rates reduced to 5 percent, and they took advantage by bringing a ton of dough back into the US. But of course, all this tax amnesty did was encourage companies to keep driving their revenue through offshore tax havens, and then use their lobbyists to push for another tax holiday.

If amnesty creates moral hazard, by encouraging people to do the wrong thing and then be forgiven, why would multinational companies be different than illegal immigrants? Storing your cash offshore is not illegal, while immigrating illegally obviously is, but the motivation component is the exact same: if you believe that amnesty encourages behavior, then you need to apply that theory equally across your policies.

By the way, among the leading rationales advanced for the tax holiday is that companies will invest the repatriated cash in jobs and growth. However, studies of the last holiday showed that companies mostly returned the cash to shareholders. Even the Wall Street Journal says so! Here is a story about how companies play the cash repatriation game, and here is one about how hard corporate lobbyists are pushing for a holiday.

Is Gun Culture Just As Bad As Hollywood?

When Wayne LaPierre of the NRA held his famous press conference after the Sandy Hook massacre, he criticized and cast blame on Hollywood and the videogame industry and their violent products. This is a common trope of the NRA and certain elements of the gun crowd: that our society’s media products glorify violence and create a culture where massacres are bound to happen.  According to LaPierre, the videogame industry is “a callous, corrupt and corrupting shadow industry that sells and stows violence against its own people” and thus we have “killers, robbers, rapists, gang members who have spread like cancer in every community across our nation.”

And here’s the thing: I don’t totally disagree. The data from studies of this are inconclusive, including a new study that just came out: see more here and here. But to me it seems hard to believe that a person, especially a malleable teenager, can keep watching grotesquely violent movies like the Saw series, or playing shoot ‘em up games like Doom or Killzone, and not become slightly inured to violence. Maybe more violent, maybe not, but certainly with a greater tolerance for violence.

But if you buy into the concept that violent memes in culture could play a role, then the NRA itself, and those same certain elements of the gun crowd, are just as culpable as Hollywood and videogame makers.  I mean, look at the NRA’s favorite saying: “I’ll give you my gun when you pry it from my cold, dead hands.” Kind of violent, right? Or another quote from LaPierre at his press conference: “The only thing that stops a bad guy with a gun is a good guy with a gun.” How is that statement less glorifying of violence than Killzone? Or remember Sharron Angle and her call for “2nd amendment remedies” to government decisions she didn’t like? That sounds like a glorification of violence to me. How about the claim of gun rights activists that the 2nd amendment is all about fighting tyranny by enabling armed revolt against the government; that too sounds like promoting violence against laws you don’t like. [Note: I am not versed in the history of the 2nd amendment, so I have no idea if this claim is right or not; I only point out that it tends to be expressed in a way that glorifies violence.]

There is a ton to be said about gun rights and gun safety, and I’m not saying any of it, although I did recently point out that stupidity + guns = badness. But I am saying that if you want to talk about how culture breeds violence, you better be careful about your own words, because they too might breed violence. In my opinion, the gun crowd isn’t careful, and their cultural contributions are as violence-tinged as anything out of Hollywood.

By the way, has anyone ever noticed that LaPierre sort of looks like the villain in Raiders of the Lost Ark, right before the Ark of the Covenant melts his face away?

Wayne LaPierre

Wayne LaPierre

Villain With Face Melting

Villain With Face Melting

Why is Health Care So Expensive?

According to Steven Brill, whose 26,000 word article in Time is getting all kinds of attention, one big factor is price negotiation. An uninsured patient can’t negotiate at all, so they get charged $1.50 for a single Tylenol in a hospital. Insurance companies negotiate on their customers’ behalf, so they get charged less. And Medicare, which is the biggest player of all, negotiates hard — volume discounts and all, just like any big customer anywhere in the world — and thus pays the least for the same products and procedures.

Interestingly, Brill steps away from one obvious solution — have Medicare cover everyone — because he says it will leave doctors underpaid. Felix Salmon takes him to task for this, pointing out that Brill never states what “underpaid” is. Since my greedy doctor post remains my most read and commented of all time, I feel a certain obligation to chime in here. I have never seen any analysis that tries to show what doctors might get paid in an all-Medicare system. Maybe it would be pretty low; if GPs maxed out at $50,000 per year, they probably wouldn’t spend all that money and time at medical school. But maybe doctors would still get paid what they do now, and it would be hospital administrators (whose multi-million dollar salaries are the true villains in Brill’s piece) getting a pay cut. Or maybe it will be CEOs of drug companies getting paid less; who would complain about fewer $78 million severance packages being paid to CEOs?

You can read more commentary regarding Brill’s article here and here.

One Reason to Limit Access to Guns

With a renewed national dialog about gun safety (I am adopting James Fallow’s nomenclature; let’s focus not on controlling guns, but on improving gun safety), I want to point out that stupidity and aggression are not constitutionally protected, and when you combine them with guns, bad things can happen. Things like:

  • A 6th grader bringing a gun to school for “protection,” and then pointing that gun at other children
  • A man forcing another man to do the moonwalk at rifle point
  • A man shooting and killing his roommate in an argument over how to cook pork chops
  • A man pulling a gun on a furniture delivery man in an argument over paying a delivery fee
  • A man going to his apartment and bringing out a rifle after having his penis size insulted in his apartment building pool

No 2nd Amendment exegesis here. Just noting that people can do a lot of awful things, and when you put killing devices in their hands, those awful things can get even worse.

Of course, 60% of my examples took place in Florida, so maybe the answer is to have tougher gun laws in that state, but leave the rest of the country alone.

Overseas Cash and Justin Bieber

As tax reform is discussed in preparation for our upcoming leap off the fiscal cliff, among the topics has been corporate tax reform, in particular how American companies are taxed on their overseas income. As the system currently works, as long as US companies keep their cash offshore, they don’t have to pay US taxes. Once they bring that money back, it’s a flat 35% tax rate. So, not surprisingly, US companies with multinational operations have a lot of cash stashed overseas. Read all about it here, here, here and here.

The thing is, some of these companies have so much cash overseas, and so little here in the US, that they’re borrowing money to fund their operations here, or to fund dividends and stock buybacks. But they (the companies and the reporters covering this topic) are making it seem like the companies CAN’T bring the money back to America. Let’s be very clear: they CAN bring the money back, it will just cost them 35%.

For example, here is how the WSJ described it:

Each of these companies is grappling with a growing problem that comes from keeping Uncle Sam away from their foreign income: How to round up enough cash in the U.S. to cover items like dividends, share repurchases, debt repayments and pension contributions.

And here is how a CFO described it in the WSJ:

“You end up with the really peculiar result where you are borrowing money in the U.S. while you show cash on the balance sheet that is trapped overseas,” said Bruce Nolop, former chief financial officer of Pitney Bowes and E-Trade Financial and now a director at Marsh & McLennan. “It is a totally inefficient capital structure.”

Now I understand why companies are keeping their cash overseas: it’s their job to minimize taxes. And I can certainly see why they would rather borrow at historically low interest rates (like 5%) than pay a 35%. No complaints from me on either front. But for the companies to act like it’s just impossible for them to bring the cash home annoys me. They choose not to bring the cash home, for good reasons, but if they really wanted to they could. It’s like saying that you can’t get Justin Bieber to play at your daughter’s bat mitzvah. You can, but it’s going to cost you a boatload.

California & SF Voter Guide

Thoughtbasket readers, if you live in San Francisco, or in other parts of California, and haven’t had time to read up on all the initiatives and propositions on next month’s ballot, a friend of mine took the time to prepare a voter guide. I can’t vouch for his recommendations — I don’t agree with all of them — but his summaries are concise and amusing, which is a pretty good combo. Make up your own minds, of course, but this might be a useful tool.

Check out the quick voter guide at www.quickvoterguide.org


Multinational Corporations and the American Commons

Harvard Business School recently launched what it’s calling the US Competitiveness Project, which is “a research-led effort to understand and improve the competitiveness of the United States.” To publicize this effort, Harvard Magazine just published a series of interviews with some of the professors involved. I don’t normally like reading interviews, because they tend to have a ridiculously high length to content ratio, but these were quite dense in content, and I recommend the whole set of interviews as important reading for anyone interested in the state of US business or multinational corporations operate.

The interviews ran to almost 20 magazine pages, so I won’t even try to summarize them. But I will note a recurring theme, which was about American companies investing in America. The professors called this America’s “business commons,” which they defined as “a skilled workforce, an educated populace, vibrant local suppliers, basic rule of law, and so on.” They pointed out that “historically, American businesses invested in these resources deeply, and that helped to build many of America’s strengths.”

Copyright 2012 Thoughtbasket

Interestingly, the professors went back and forth between reasons to support America’s business commons, from what I call “hard” reasons (those that drive profitability) to “soft” reasons (patriotic calls to support America).

Hard reasons included:

  • Outsourcing calculations often overestimate cost savings
  • Local manufacturing can drive product and process improvements
  • For most multinationals, the US still makes up the majority of their business

Soft reasons were more vague, with a desire of “many in the business community to roll up their sleeves and do things in their communities” being a typical statement. Michael Porter (a giant in the strategy and competition fields) and Jan Rivkin define US competitiveness as including “raising the living standards of the average American.”

This all raises an interesting dilemma. If the role of corporate executives is to maximize returns to shareholders (this is how most US managers operate, although there is in fact disagreement regarding shareholder v. stakeholder approaches: read relevant articles here, here, here and here) then they shouldn’t care whether they build America’s business commons or China’s business commons or any other business commons, except to the extent that any given commons supports their business. In other words, if Jeff Immelt at GE thinks that investing in China’s educational system will generate higher returns than investing in America’s, that is what he should do.

However, I suspect that most executives at big US companies would feel uncomfortable with that. Since most of them were born in the US, raised in the US, and live in the US, there is probably some part of them that feels a loyalty to the US, that wants to build America’s commons even if building China’s commons has a higher ROI. How do these CEOs reconcile their duties to shareholders with their inherent patriotism? I don’t know. The professors in the US Competitiveness Project would suggest that the disconnect is not as great as many think; that building the US commons DOES have a high ROI. But based on my reading, it sounds like they would also give executives permission to foreground their patriotism over pure shareholder analysis, at least on borderline cases.

In addition to Michael Porter and Jan Rivkin, other professors interviewed included Willy Shih, Rossbeth Kanter and Thomas Kochan (who actually teaches at MIT, not Harvard).