Phantom FDI - Companies Aren't Investing, They're Hiding Money

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Economists Brad Setser, John Hussman, and Paul Krugman discuss tax avoidance disguised as corporate investments.

Phantom FDI

Profit Shifting

Low Tax Countries

Mind You, This Takes a Hell of a Lot of Work

But Stunning Results

Fizzle

Mish Asks Where's Da Money?

Hussman Reply

Proposal

It would be a hell of a lot simpler to slash the US corporate tax rate to 10% with no loopholes and put a minimum tax rate of 12% on FDI and profits held overseas.

100% of that money "held" overseas would return in about 15 seconds because it really isn't there in the first place as Hussman explained some time ago.

Hussman's only mistake was failure to come up with a catchy phrase like "Phantom FDI".

Mike "Mish" Shedlock

Comments (11)
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abend237-04
abend237-04

When any economist discovers transfer pricing and begins waxing eloquent about tax fairness, I instinctively feel for my wallet. No politician anywhere ever taxed a corporation for anything. It's the customer who's the mark and the customer is just too dumb/disinterested to stand and fight it by insisting the politician speak in total spend and total tax terms to the total citizenry.

However, Hussman is right on that the only way to have actually moved the R&D needle with foreign profit repatriations was to have restricted any tax credit to Future R&D spend rates above actuals. Otherwise, a huge chunk of repatriated profits would simply be fed into the stock buyback furnace, which is exactly what happened.

The really worrisome thing to me is corporate America's blatant admission that they'd rather drive their own capital stock down with buybacks, enhancing their own comp plans, than blaze new trails with innovation...the only thing that actually drives human living standards.

JustASimpleMan
JustASimpleMan

There's a hierarchy of employment for accounting and financial types in terms of skill level and remuneration.

The smartest, most cunning, most creative and most greedy rise to the top of corporate industry and run the show. Some even get to run companies like Enron and RBS or turn dodgy governmental tricks for the vampire squid or float unicorn IPOs.

The next layer down is the senior people at big accountancy firms and auditors, who know which side their bread is buttered on and how to keep the pipeline of base fees plus additional consultancy work flowing freely. Or they are the lobbyists who for the price of a few good meals and a game of golf can persuade politicians to write ever more convoluted, exemption riddled and ineffective tax codes.

Somewhere below that comes the shysters who are driven to come up with tax avoidance schemes, smoke and mirror investment schemes and too good to be true get rich quick schemes. An over-endowment of greed outweighs any intellectual weakness.

Way down near the bottom of the pile are the ones who end up working for tax authorities. Predominantly honest and hard working but hopelessly outclassed and outgunned.

get
get

Better still would be to tax revenue instead of profit which can always be fudged. Tax of just 1 or 2% should be sufficient with no tax for those under $500,000 revenue, for example.

Many say it's regressive but I don't buy it and I run a small biz. Widget Co. doesn't give me a break on pricing because I didn't show a profit last year. Why should government?

Government provides a service like everything other: roads, water, police, fire, health, airports, etc. They should get paid for services rendered just like every other vendor.