Corporate Cash Con
By PAUL KRUGMAN
July 3, 2011
Month by month, with stunning speed, the lessons of the 2008 financial crisis have been forgotten. Over the last two years profits have soared while unemployment has remained disastrously high. Why should anyone believe that handing even more money to corporations, no strings attached, would lead to faster job creation?
How can people simultaneously demand savage cuts in Medicare and Medicaid and defend special tax breaks favoring hedge fund managers and owners of corporate jets?
And then there’s the repatriation issue.
U.S. corporations are supposed to pay taxes on the profits of their overseas subsidiaries — but only when those profits are transferred back to the parent company. Now there’s a move afoot — driven, of course, by a major lobbying campaign — to offer an amnesty under which companies could move funds back while paying hardly any taxes.
We’ve already seen this movie: A similar tax holiday was offered in 2004, with a similar sales pitch. And it was a total failure. Companies did indeed take advantage of the amnesty to move a lot of money back to the United States. But they used that money to pay dividends, pay down debt, buy up other companies, buy back their own stock — pretty much everything except increasing investment and creating jobs. Indeed, there’s no evidence that the 2004 tax holiday did anything at all to stimulate the economy.
How can anyone imagine that lack of corporate cash is what’s holding back recovery in America right now? After all, it’s widely understood that corporations are already sitting on large amounts of cash that they aren’t investing in their own businesses. If corporations already have plenty of cash they’re not using, why would giving them a tax break that adds to this pile of cash do anything to accelerate recovery?
It wouldn’t, of course. Claims that a corporate tax holiday would create jobs, or that ending the tax break for corporate jets would destroy jobs, are nonsense.
Lack of corporate cash is not the problem facing America. Big business already has the money it needs to expand; what it lacks is a reason to expand with consumers still on the ropes and the government slashing spending.
What our economy needs is direct job creation by the government and mortgage-debt relief for stressed consumers. What it very much does not need is a transfer of billions of dollars to corporations that have no intention of hiring anyone except more lobbyists.