In this time of rising economic inequality there is another type of inequality that seems to be on the rise as well. Of course, maybe I’m merely being optimistic. Maybe this type of inequality has been with us always. This is reputed to be a country of laws and not of men, but that adage says nothing about corporations, and that appears to make all the difference.
Shouldn’t somebody be going to jail for this?
It was called the “Homeland Investment Act,” and was sold to Congress as a way to spur investment in America, building plants, increasing research and development and creating jobs. It gave international companies a large one-time tax break on overseas profits, but only if the money was used for specified investments in the United States.
The law specifically said the money could not be used to raise dividends or to repurchase shares.
Now the most detailed analysis of what actually happened — using confidential government data as well as corporate reports — has estimated what happened to the $299 billion companies brought back from foreign subsidiaries. About 92 percent of it went to shareholders, mostly in the form of increased share buybacks and the rest through increased dividends.
The data apparently resides in government files that are far too secret to allow us mere mortals to peruse, but to which some researchers recently got access, on the condition that they not reveal specifics about the corporate criminals. But they were able to give an example, culled from public SEC filings:
The study, titled “Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act,” was released this week by the National Bureau of Economic Research. It was written by Dhammika Dharmapala, a law professor at the University of Illinois; C. Fritz Foley, an associate professor of finance at Harvard Business School; and Kristin J. Forbes, a professor of economics at the Massachusetts Institute of Technology who was a member of the president’s council of economic advisers from 2003 to 2005.
“The restrictions on how the money will be spent seem to have been completely ineffective,” Ms. Forbes said in an interview this week.
“Dell was a great example,” she added, referring to Dell Computer. “They lobbied very hard for the tax holiday. They said part of the money would be brought back to build a new plant in Winston-Salem, N.C. They did bring back $4 billion, and spent $100 million on the plant, which they admitted would have been built anyway. About two months after that, they used $2 billion for a share buyback.”
If the law specifically says that the money can’t be used to buy back shares, and if the money was in fact used for that purpose, it would seem to be an open and shut case of tax fraud. We are talking big money; why have these corporations been allowed to engage in this massive fraud?
A minor point. I ranted for the umpteenth time recently about the stupidity of local tax abatements. This program is the federal equivalent, and it appears to confer almost as much benefit on the country as tax abatements confer on the towns.
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