Whose Stimulus?

The below is an editorial from the New York Times.
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The NY Times
June 26, 2011

Whose Stimulus?

Big businesses are telling Washington that they are willing to do their bit for the economy — if the price is right. Multinational companies say they could repatriate hundreds of billions in foreign profits and pump them into domestic investment and hiring, but only if Congress and the White House agree to cut the tax rate on those profits to 5.25 percent from 35 percent. They call their plan “the next stimulus.” Sounds more like extortion.

In the last five years American businesses have kept abroad more than $1 trillion worth of foreign earnings, according to government data. An article by David Kocieniewski in The Times last week noted that Microsoft has $29 billion offshore, Google has $17 billion and Apple has $12 billion.

The Obama administration should not give in to such corporate coercion. The last time big businesses got such a “tax holiday,” in 2005, companies spent most of the money rewarding their shareholders with stock buybacks and dividends, not in hiring.

Truth is, businesses’ decisions to invest or increase employment depend on the state of the economy. If consumer demand is depressed, as it continues to be, corporate chieftains see no business logic in raising production. In the second quarter of 2010, when expectations of recovery were rosier, nonresidential investment jumped 17.2 percent. In the first quarter of this year it grew only 2 percent.

Bringing more money home at lower tax rates isn’t going to change that thinking. What these businesses don’t say is that they are already awash in cash. According to Federal Reserve data, companies in the United States have $2 trillion stashed in bank accounts, Treasury securities and other investment-ready assets. And this excludes cash held abroad by their foreign subsidiaries to avoid taxes.

Businesses will always want a tax cut. And they will always justify it as good for hiring and investing, whether or not it is. We remain perplexed by the Obama administration’s decision to consider businesses’ contention that cutting employers’ contributions to payroll taxes will lead to more jobs. It probably won’t — especially if the break is not specifically tied to new hiring.

The faltering economy needs real stimulus, like extending the payroll tax cut for workers until the end of next year. That would put money directly in the pockets of American workers and stimulate consumption. Investing in infrastructure would also help.

Beyond pleasing shareholders, there is one other guaranteed result of giving employers a big tax break on their foreign profits: less cash to finance government programs or pay down the deficit. According to Congress’s Joint Committee on Taxation, the proposed cut would cost $79 billion over 10 years.