Thursday, July 28, 2005


This month is the first corporate earnings season since the The American Jobs Creation Act of 2004 bill passed and I'm astonished at how much tax dollars Congress has pissed away for so little gain.

Within the bill is a provision that allows corporations to "repatriate" earnings made outside the US at a tax rate of 5.25% instead of 35% for this year only. The rationale was to reap at least some tax revenue from money stashed away overseas and give "U.S. businesses... more resources... to create new jobs and keep existing workers."

Only thing is, there were no hard and fast rules on how the overseas profits were to be spent. Amazingly, as this Businessweek article reports, "six of the ten companies repatriating the biggest totals are axing workers in the U.S." Among them HP is slashing 14,500 jobs and Pfizer is closing 20 US factories.

The whole overseas profits issue is basically a semantic accounting scam anyway. Let's say Pfizer has a factory overseas that makes amoxicillin. The actual cost of manufacture is probably much less than a penny a pill. Logically, one would think that the factory ships the pills to the US and then Pfizer sells them to wholesalers and books the profit here. No, that's not what happens. The overseas factory is actually a separate corporate subsidiary which sells the pills to Pfizer for a buck or two each, booking the majority of the profits overseas. Pfizer then says with a straight face that their markup to wholesalers is within industry standard of maybe 50% or so.

It's a win for the multinationals because the cash is inconviently stuck overseas and they save tons off their taxes to bring it in, a win for the Treasury because it gets a lump sum of money this year it would have otherwise waited years to eventually receive, but it's a total loss for you and me because we have to make up for the revenue shortfall the Federal government is going to have this year ($350 billion?) by paying interest on Treasury bonds sold to finance the deficit.

I dunno how these jokers can look themselves in the mirror. . .