I’ve been in and out of DC a few times in recent weeks and one thing I keep hearing is that there is a growing, and real, possibility that a second “one-time tax holiday” will be approved for corporations as part of whatever sordid deal emerges from the debt-ceiling negotiations.Personally, I'm okay with a tax holiday, so long as strings are attached (i.e., you can bring the money back in tax free, but ONLY if you invest in creating real jobs in the U.S.), but that is not what we're talking about here:
Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.The difference between now and 2004 is that, reminiscent of the events leading to the bank bailout and TARP, an existential economic crisis is being manufactured to justify something that is manifestly not in the American people's interest, but this time it is being peddled directly to the American people.
Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.
Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.
Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs.
All this smacks of desparation. There are only so many times you can play the "financial fiction will doom economic reality" card. The next phase of this game of managed deflation (as I call it) is war. Nothing less than patriotic fervor induced by a perceived physical threat will be able to distract the populace from the fact that it is being mugged.
Seriously, does anybody think that this kind of story gets published without the complicity of the Fed, the entity managing deflation?
(Reuters) - The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government's $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday.And sites like zerohedge eat the news up as confirmation of their theories, rebroadcasting it to confirm their readership's religious (i.e., economics), never realizing that they're aiding and abetting the system they claim to oppose.
Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the U.S. central bank has for the past few months been working closely with Treasury, ironing out what to do if the world's biggest economy runs out of cash on August 2.
"We are in contingency planning mode," Plosser told Reuters in an interview at the regional central bank's headquarters in Philadelphia. "We are all engaged. ... It's a very active process."
Plosser said his "gut feeling" was that President Barack Obama and Congress will come to an agreement to increase the Treasury's borrowing authority in time to avert a default on government obligations.