Trickling Down
Oct 17th, 2005 at 7:54 am by Susie
I don’t know about you, but I’m certainly surprised!
A year after the Jobs Creation Act was signed into law by President Bush, an estimated $206 billion (£116 billion) earned overseas by US multinationals has returned to America to take advantage of a one-off reduction in the rate of corporation tax.
Normally, companies face a 35 per cent tax on dividends when they repatriate their profits. But the Act reduces the levy to just 5.25 per cent on the profits of foreign subsidiaries.
Many of the biggest returns of capital come from pharmaceutical companies with factories in jurisdictions with low corporate tax rates such as the Irish Republic. Pfizer, the drug maker, has announced plans to repatriate nearly $37 billion this year, while last week DuPont, the chemicals group, announced plans to bring $9.4 billion in overseas earnings into the US to be taxed.
The aim of the Act was to encourage the firms to create jobs by investing their profits in the US.
But there is growing evidence that companies are instead funnelling the tax break into debt reductions and share buybacks, to the benefit of shareholders. The law does not require the companies to prove that they are using the money to raise investment levels above their original plans.
Nicholas Bohnsack, of International Strategy and Investment, a US investment advisory group, said that firms had cut their debts and used the rest of the money on mergers and acquisitions, dividends, share repurchases and funding pension liabilities.
Actually it did what the Bushiveks wanted - bring dollars back into the USA so they could spend more at home.
Looks pretty responsible:
* cut their debts
* paid dividends to shareholders
* funded pension liabilities.
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