by Linda Beale
Dell’s Offshored Cash Hoard and Fair Taxes
As most people who follow mergers, acquisitions and other mega transactions are likely aware, Michael Dell wants to take the company he founded private in a leveraged buyout. LBOs, of course, use the company’s own assets as collateral for debt to purchase the company–one of the types of financial alchemy that has contributed to the last thirty years of corporate consolidations and elite wealth accumulation, both of which are problematic for sustainable economies and sustainable democracies.
Michael Dell has a particularly interesting “problem”. Like most high-technology companies, Dell has avoided a lot of US tax by offshoring and claiming its profits in offshore tax havens rather than in the US. So it has more than $14 billion of highly liquid assets in offshore affiliates and not here. See Zahary Mider and Jesse Drucker, Dell Leveraged Buyout May Hinge on Cash Hoard Outside US, Bloomberg.com (Jan. 18, 2013).
We shouldn’t allow that, but fixing it would require real corporate tax reform, not the stuff that commissions and Congress blather on about most of the time, like “lowering tax rates” and “simplifying the tax code”, both of which are nonsensical when it comes to corporate multinationals who pay incredibly low effective tax rates already and who will use any “simplification” as just another inviation to exercise their sophisticated tax skills at manipulating the Code for their private tax advantage.
Congress of course hasn’t had the gumption to take on Big IT for years.
And under the Bush Administration, when Congress and the Treasury seemed to be motivated primarily by seeing how fast they could give away tax breaks to corporate business through the tax code, Congress enacted one of its most foolhardy tax expenditures that especially benefited corporations that had been “bad” tax citizens–the 2004 misnamed “American Jobs Creation Act” that allowed the bad companies that had offshored their profits to avoid tax the indulgence of bringing those untaxed profits home at what amounted to no or negative tax rates–the so-called “repatriation holiday” provision. As usual, the right-wing claimed that these corporate tax breaks would create jobs. They didn’t (as shown by Bush’s dismal job creation record, even before the onset of the great Recession). Instead, they were used for corporate stock buybacks and similar goodies for those investors who are mostly the wealthy upper-class who own most of the corporate assets. So the repatriation tax holiday exemplified the problems of the corporatist agenda and the way it exacerbates inequality, a kind of class warfare in bits and increments.
So we can expect a new onslaught of lobbying by companies like Dell for another extraordinarily wasteful “repatriation holiday.” The lobbyists will claim that such corporate tax cuts are essential if we want big companies to keep creating jobs. But that’s bunk. The evidence is in from the last repatriation holidy–it lined the pockets of the rich, as most of these corporate tax breaks have done and did not create jobs.
Obama and the Democrats in Congress should resist. Ordinary Americans should not bear the burden of ordinary income rates when the wealthy are taxed at preferential capital gains rates. And ordinary Americans surely shouldn’t be called upon yet again to subsidize profit-making corporation’s low-tax regimes through the cuts ordinary Americans will suffer to needed services.
crossposted with ataxingmatter