The right kind of stimulus

We have already seen the Democrats' version of a stimulus for the economy. It was mostly payments to favored constituencies like public employee unions and academics that he essentially no lasting effect at producing jobs. While the money flowed, there were a few jobs created at a cost of something like half a million dollars for each job, but now that the money is drying up, the jobs are disappearing. The cost of the program was gargantuan --close to a trillion dollars!

Now it is time to try another type of stimulus, one that will create jobs and actually increase revenues to the US Treasury. Sounds too good to be true? It is real, however. It requires a change to the US tax laws that would allow US based corporations to bring profits earned elsewhere in the world back into the US without haveing to pay the high US corporate tax rates on the repatriated funds. Some background is needed in order to understand this plan. Under current law, a US based corporation that earns profits abroad does not have to pay US tax on those earnings until it brings them back into the US. In other words, a multinational corporation that earns profits in Europe pays tax on those profits to the country where they are earned, not to the USA. Not surprisingly, US based corporations have not brought home their profits earned outside the country. After all, why pay yet another tax on profits that have already been taxed by the country where they were earned? At last count, there is something between one and two trillion dollars of these profits that have built up outside the USA.

If Congress were to change the law so that these funds could be brought back into the country at a nominal tax rate of 5%, the flow of money back to the US would be very large. Imagine if half a trillion dollars were brought back into the USA. First of all, the Treasury would receive 25 billion dollars more than it otherwise would have gotten. While this is small in terms of the enormous Obama deficits, it is a start in the right direction. More important, this half trillion dollars would be available for US corporations to invest in this country. If only 20% were invested, that would still mean 100 billion dollars of additional investment which would generate hundreds of thousands of jobs, maybe even millions of jobs. Those jobs would reduce the costs incurred by the government and increase the tax revenues paid to the government, and these jobs would continue into the future! Beyond this, if half of the remainder of the money was paid out as dividends to shareholders, there would again be another cash flow into the treasury as these dividends were taxed. there would also be a rise in the stock market as the higher dividends supported higher stock prices. That means higher capital gains taxes. In other words, this move could cut the deficit by over 100 billion dollars per year and put many people back to work.

The principal argument advanced by Democrats against this plan is that it is unfair; it allows these companies to avoid paying taxes that they now would owe if they brought the funds back to the US, and that would be helping the rich. Of course, this misses the point. the companies are not bringing the funds back to the USA just because of the taxes. So, the Democrats are worrying about a tax that never gets paid and, as a result, they are preventing job creation in the USA and promoting the investment of these funds in other countries. In other words, in their endless class warfare efforts, the Democrats would rather hurt the country and the unemployed rather than help any large corporation. Simply put, they just don't get it.