How About A Free $1 Trillion Stimulus

I was talking with my brother regarding Bernanke's quantitative easing version 2.0, when he mentioned this article from the Wall Street Journal printed 3 weeks ago.

By waiving the 35% tax for repatriating overseas earnings, American corporations could infuse $1 Trillon dollars into the US economy.  The federal government would lose out on $300 to $350 Billion in taxes, but that is far less than the cost to the taxpayers Bernanke is proposing by flooding our monetary system with  $1 Trillion in newly printed currency.  This Bernanke funny money can be decirculated true enough, but for however long it is in the system, there will be a devaluation penalty extracted from the existing  money supply.

Prices will shoot up, with the issuance of the QE2 funds, and will only begin to ease sometime after the removal of this currency if it is, ever;  then at that later time the dollar would begin to settle back to it's original value.  However we as consumers will be adding to our debt because we will be paying back with dear dollars, any borrowing taken out in cheap dollars.

 Current consumer savings during this process will lose purchasing power due to this  inflationary movement . The cost to the average taxpayer will be felt in all areas including  their 401ks as an inflationary hit. As your retirement fund goes down in buying power, the federal entitlement payments will increase to keep the federal poor "whole".  Some would call it a redistribution of wealth.

When stagflation occurred under Carter during 1972-1976,  we had both inflation and high unemployment.  The economy stalled while the prime rate peaked at 18%, and unemployment  climbed to 12%.  What we didn't have at that time was  the drag on the economy by a mountain of national debt, as we have today.  Current prime sits at 3.25% and  unemployment at 9.6%.

For the want of Capital Hill economic leadership, a far wiser kick to the economy could be achieved by giving  Corporate America a break, by foregoing some tax revenue, in exchange for  gaining some much needed  momentum towards revitalizing the US economy.

Steve
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The Wall Street Journal
OCTOBER 20, 2010

The Overseas Profits Elephant in the Room

There's a trillion dollars waiting to be repatriated if tax policy is right

By JOHN CHAMBERS AND SAFRA CATZ

During last year's "Jobs Summit," President Obama said he was open to any good idea to get the economy moving again. Today he should be especially so, since Washington's many monetary and fiscal policy decisions have not been able to spur the robust growth or job expansion that we all would like. And yet there is a simple idea—the trillion-dollar elephant in the room—that has apparently been dismissed for no good reason.

One trillion dollars is roughly the amount of earnings that American companies have in their foreign operations—and that they could repatriate to the United States. That money, in turn, could be invested in U.S. jobs, capital assets, research and development, and more.

But for U.S companies such repatriation of earnings carries a significant penalty: a federal tax of up to 35%. This means that U.S. companies can, without significant consequence, use their foreign earnings to invest in any country in the world—except here.

The U.S. government's treatment of repatriated foreign earnings stands in marked contrast to the tax practices of almost every major developed economy, including Germany, Japan, the United Kingdom, France, Spain, Italy, Russia, Australia and Canada, to name a few. Companies headquartered in any of these countries can repatriate foreign earnings to their home countries at a tax rate of 0%-2%. That's because those countries realize that choking off foreign capital from their economies is decidedly against their national interests.

.Many commentators have pointed to the large cash balances sitting on U.S. corporate books as evidence that the economy is still stalled because companies aren't spending. That analysis misses the point. Large cash balances remain on U.S. corporate books because U.S. companies can't spend their foreign-held cash in the U.S. without incurring a prohibitive tax liability.

Especially with corporate bond rates falling below 4%, it's hard to imagine any responsible corporation repatriating foreign earnings at a combined federal and state tax rate approaching 40%.

By permitting companies to repatriate foreign earnings at a low tax rate—say, 5%—Congress and the president could create a privately funded stimulus of up to a trillion dollars. They could also raise up to $50 billion in federal tax revenue. That's money the economy would not otherwise receive.

The amount of corporate cash that would come flooding into the country could be larger than the entire federal stimulus package, and it could be used for creating jobs, investing in research, building plants, purchasing equipment, and other uses. It could also provide needed stability for the equity markets because companies would expand their activity in mergers and acquisitions, and would pay dividends or buy back stock. And when markets go up, confidence increases and businesses and consumers begin to spend.

The $50 billion boost in federal tax revenue, meanwhile, could be used to help put America back to work. For example, Congress could use it to give employers—large or small—a refundable tax credit for hiring previously unemployed workers (including recent graduates). The tax credit could equal up to 50% of a worker's first-year and second-year wages, capped at $12,500 per year (or $25,000 total per new hire).


Such a program could help put more than two million Americans back to work at no cost to the government or American taxpayers. How's that for a good idea?

Mr. Chambers is chairman and chief executive officer of Cisco Systems. Ms. Catz is president of Oracle Corporation.