President George W Bush had a wonderful idea to stimulate the economy: one time tax break to repatriot offshore corporate profits.
Okay, so we know that this didn’t work. This didn’t work because repatrioting, bring back, corporate profits with a lowered tax incentive didn’t come with the restrictions necessary to funnel the funds toward productivity. What do I mean by this?
Simply put, buying things does not always lead to productivity. What is bought is very important. If I bought undeveloped land and decided to build a house, that increases productivity (not the rate but just overall), it distributes the wealth that was brought into the country and lowers unemployment.
However, the companies that had loads of profits sitting outside of the country didn’t do that. They didn’t invest in making their factories more productive. They didn’t give employees a raise. They didn’t hire new workers for the demand that was being created. Let’s remember what types of companies had lots of profits sitting outside of the country: large corporations. They decided to buy their competition, the smaller firms that were creating products and providing services that could force them to lower prices to compete for customers and increase wages to compete for workers. The result was less competition for customers and employees.
So, repatrioting offshore profits can work as long as we don’t give the tax break to buying non-productive assets, like equities or debt or commodities or, essentially, any financial instrument. Repatrioting the profits is supposed to replace financial instruments for financing activities, not bolster them.
Today, corporations are, again, sitting on mountains of cash from profits offshore, ready to be repatrioted but are not because it would cost them dearly in taxes. Plus, deflation is still a risk. Unemployment hovers above 5% and people are making 10% less than they did 15 years ago. People should be making 10% more, though.
So, I would like to propose bringing back the one time repatrioting of corporate profits. But this time, do not allow companies to buy other companies, or anything in the capital markets. Force companies to spend on meeting more of the market’s needs. After all, in good times and bad, a healthy economy is one that meets the needs of the people as a whole, not the few people who can afford to own lots of shares of corporations.
About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.