Here’s a gem of an article that reminds us why we need to unscrew the mess that is the IRS. It seems that huge multinational corporations, such as Apple and Microsoft, are keeping their cash overseas thanks to Congress and the IRS:
“Congress is largely to blame. In 2004, the United States temporarily reduced the tax rate on repatriations to roughly 5 percent. The problem was not just the lost revenue or the false promise of a flood of new domestic investment. The tax holiday also raised expectations for future tax holidays, and companies have changed their behavior accordingly by hoarding cash offshore.”
See the trend that never ends? Congress gets involved in commerce and we the People end up suffering for it. How do we suffer, you ask? Because of this:
“There is reason to be equally concerned about companies that respect the accounting rules and, in order to avoid the repatriation tax, actually reinvest overseas. Evidence suggests that accounting-motivated foreign direct investments achieve a lower rate of return than investments in the United States. As economic theory would predict, corporate managers are willing to accept a lower pretax rate of return and create jobs overseas rather than paying the repatriation tax and create jobs at home.”
I don’t know about you, but I’d much rather have that cash reinvested over here. Government meddling in free trade, as well as the placing of business under the crushing weight of taxation, leads to nothing but trouble. The author of the article, Victor Fleischer, closes with this sobering observation:
“The tax system that creates these incentives is in need of attention. A territorial tax system with better policing of transfer pricing is one option. A worldwide consolidation system without tax deferral is a better one. And a lower corporate tax rate would help.
Until then, we can expect further scrutiny of tax professionals struggling to navigate a system that begs for gamesmanship.”