The Markowski Stimulus Program

Christopher MarkowskiArticle, Research & The EconomyLeave a Comment

I was strongly against the 2008 stimulus package that President George W. Bush pushed for and Congress agreed to, which I dubbed the “Incumbent Protection Act of 2008.” I was also aghast at the monstrosity of a stimulus that the Obama administration rushed through Congress in 2009. I proposed back in 2007, during the early stages of our descent into financial chaos, a simple step that could get our nations pump primed in an expeditious and prudent fashion. The idea is still applicable and should be utilized today.

What if I were to tell you that it was possible to stimulate our nation’s economy without it costing a dime?

No, I have not been drinking any of Paul Krugman’s Keynesian Kool –Aide (150 Proof).

One trillion dollars is the roundabout dollar figure that American companies have in their foreign subsidiaries. If they bring that money back to the United States, rather than being greeted with open arms; it would be smacked upside the head with the world’s highest corporate tax rate of 35%. Note: We should strive to be number one as a nation in many things, education, technology, military etc.; tax rates should not be one of those things. One trillion dollars is quite a hefty sum. You don’t have to borrow it like the Obama stimulus package. It can be used to invest in jobs, manufacturing, research and development and many other things. This capital would be utilized in a much more prudent and efficient manner, due to the fact that unlike the public sector there are consequences in the private sector for misallocation of resources.

The way we treat the repatriation of foreign earnings stands in contrast to the tax practices of almost every major developed economy. Germany, Japan, The U.K., France, Spain, Italy, Russia, Australia and Canada to name just a few, allow companies that are based on their soil to repatriate foreign earnings at a 0%-2% tax rate. Why is it that these nations understand that starving ones nation from foreign capital is a really dumb idea, yet we do not? What transpires due to our idiotic tax code, is that American companies do put their foreign capital to work…just not in the United States. Therefore opening plants and creating jobs that could have been done right here.

John Chambers the CEO of Cisco Systems wrote in an op-ed in The Wall Street Journal…

Many Commentators have pointed to the large cash balances sitting on U.S. corporate books as evidence that the economy is still stalled because companies aren’t spending. That analysis misses the point. Large cash balances remain on U.S. corporate books because U.S. companies can’t spend their foreign-held cash in the U.S. without incurring a prohibitive tax liability. Especially with corporate bond rates falling below 4%, it’s hard to imagine any responsible corporation repatriating foreign earnings at a combined federal and state tax rate approaching 40%. By permitting companies to repatriate foreign earnings at a low tax rate, say 5%. Congress and the president could create a privately funded stimulus of up to a trillion dollars. They could also raise $50 billion in federal tax revenue. The amount of corporate cash that would come flooding into the country could be larger than the entire federal stimulus package.”

This past December Japan announced that it was cutting its corporate tax rate by 5% points. That leaves the United States with an average federal and state corporate tax rate of 40%. Out of curiosity…”Why would one pour capital into a new technology business or factory here in the United States when you could construct one in Poland, South Korea or the Czech Republic for a greater than 40% savings in taxes? The Competitive Enterprise Institute stated that companies are not sitting on cash. They are hiring overseas, creating 1.4 million jobs in 2010.

Wouldn’t it be nice to be creating real jobs here, rather than more Obama-stimulus-package induced government jobs, or on choo-choo trains that nobody will ride?

 

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