When discussing the isues of the day it helps to keep the relative size of events in the forefront of one's mind. As an example, consider corporate tax rates, and whether or not US corporations are paying their "fair share". The CBS program 60 Minutes tackled this issue last Sunday night.
Our government is in knots over ways to lower the federal budget deficit. Well, what if we told you we found a pot of money ... that could be used to help out?I placed those ellipses in the first quoted paragraph to hide the size of the pot of gold. Later the story discusses the pot of gold in other terms:
That bundle is tax money not coming in to the IRS from American corporations. One major way they avoid paying the tax man is by parking their profits overseas. They'll tell you they're forced to do that because the corporate 35 percent tax rate is high in relation to other countries, and indeed it seems the tax code actually encourages companies to move their businesses out of the country.
The total amount of money U.S. companies have trapped overseas is $1.2 trillion.Wow, $1.2 trillion with a 'T' in US corporate profits are parked overseas where the IRS can't get at them. This looks like a huge problem, and it is in many ways. But if one looks at it as a problem of government revenues it isn't much of a problem at all.
Consider it this way: If the entire $1.2 trillion in overseas corporate profits were repatriated this week and taxed at the current 35% US corporate tax rate, that would generate $420 billion in tax revenue. That sounds like a lot. And from the view of the corporations (and their officers, board members, share holders, bond holders, etc) it is a lot. In fact by every reasonable standard that is a lot of money.*
But looked at in relation to the US government that $420 billion would only eliminate about 25% of the 2011 fiscal budget deficit (estimated) of over $1.645 trillion. And those corporate profits have been accumulated over several years since the last profit repatriation holiday in 2005. So several years of corporate taxes that we haven't gotten would still only kill off one-quarter of this year's deficit. THAT is how big our government has grown.
So even if the corporations were paying their "fair share", it would still only add about $60 billion a year to the coffers.
It's small potatoes, just like the dueling Republican and Democratic budget cut proposals currently being discussed.
I realize that these issues appear small in relation to what is happening in the Middle East and Japan. And these kinds of budgetary matters do not have the immediate lief-and-death impact of those situations. But they are very real, and very important. The death of an empire can be precipitated by financial crisis, and that is what we are facing. And when studying our options we need to remember what is significant and what isn't. So don't let people of either party distract you with talk of fat corporations parking their money overseas. The problem is MUCH bigger than that, and it relates to how much the government is spending, not what some companies are (legally) doing to lower their tax burden.**
* And I remember a time when spending $420 billion dollars could bring another superpower to its knees trying to match US military spending.
** That said, corporate tax rates are important - but they're part of a much larger problem with our tax code and industrial policy.