Apple, Google, Microsoft Sitting on 58 Billion in Overseas Profits, Blackmailing Us to Avoid Taxes
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3. The tax holiday money probably ended up in Wall Street’s fantasy finance casino.
So where did all that tax holiday money go after the shareholders got it? No one knows for sure, but I’d be willing to wager that most of it ended up on Wall Street helping to fuel the boom in junk mortgage-related securities, which in turn pumped up the housing bubble. By 2005, wealthy shareholders in major corporations had more money than they had real investment opportunities. And Wall Street, now deregulated, solved that little problem by creating a vast array of garbage securities that the rating agencies blessed with AAA ratings. This Wall Street garbage, in turn, created an enormous demand for millions of high risk mortgages. If you could breathe you could get a mortgage. The tax holiday, no doubt, fueled the calamitous Wall Street machine.
Is there any evidence for this claim? It’s circumstantial. In 2004, there were $157 billion in new collateralized debt obligations – those giant pools of mortgaged-back securities that turned toxic. In 2005 and 2006, as the tax holiday fully took hold, new CDOs climbed from $272 billion to $557 billion. Then in 2007, it decreased to $486 billion before crashing to next to nothing in 2008. It may just be a coincidence, but it sure looks like the tax holiday gave the CDO market a nice boost.
4. Corporate America is already sitting on a trillion dollars they are not investing.
The largest American corporations have tons of cash they are not moving into job-creating investments (the 500 companies in the S&P index alone are sitting on $960 billion, according to the Wall Street Journal). Why? Because unemployment is still so high and the recovery still so weak, that they have plenty of workers and productive capacity to fulfill the tepid demand.
This is the same problem that John Maynard Keynes identified during the Great Depression – an economy with high unemployment can get stuck in a trough where people are fearful of consuming and corporations are fearful of investing. The answer then, and the answer now, is for the government to put the unemployed back to work doing the vital business of the nation, even if it runs up the deficit some more. We could use a vast army of workers to weatherize buildings and to rebuild our crumbling infrastructure. These are the potential consumers that could spur corporations to create jobs.
5. Not only didn’t corporations create jobs during the last tax holiday, but they actually destroyed them.
Corporations are in business to make as much money as possible. If creating jobs helps do that, fine. If killing jobs is the highest profit strategy, then the jobs go. During the 2005 tax holiday, it was job-killing time. As the New York Times reports,
“Indeed, 60 percent of the benefits went to just 15 of the largest United States multinational companies — many of which laid off domestic workers, closed plants and shifted even more of their profits and resources abroad in hopes of cashing in on the next repatriation holiday.”
6. Corporate America used the last tax holiday to prepare for the next one.
Did you catch that last line? That’s quite an accusation because it means that America’s largest corporations were preparing for the day when they could again jam through another tax holiday.
They couldn’t come begging again during the 2008 crash – too unseemly. They couldn’t stick their hand out while the bailouts were flowing to Wall Street – too many ahead in the line. And they couldn’t pretend to create jobs while the stimulus package was in effect – too hard to claim that the tax holiday was needed. But now that we’re deep in debt and now that no political party has the nerve to tax Wall Street to create the jobs that the Wall Street crash destroyed, this is the perfect time to execute the tax holiday game plan.