The New York Times lays into tax competition

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The New York Times editorial of 25 July was magnificent. I can't summarise it, so I'll quote it (and hope they'll forgive me):

As Americans grapple with the impact of trade and globalization, the government should be trying to ensure that America's multinational corporations - and by extension, their shareholders - pay a fair share in taxes on the profits from globalization. Unfortunately, policy makers have moved in the opposite direction, dishing out excessive corporate tax breaks that have done little for workers and have served mainly to concentrate wealth among the few.

The corrosive effects of that trend were detailed in The Times yesterday by Alex Berenson, who examined the fallout of the Orwellian-named American Jobs Creation Act of 2004. Pitched by tax-axing lawmakers as a way to generate cash for new hiring, it allowed American companies to bring foreign-held profits back to the United States in 2005 at a discount of up to 85 percent off the normal tax rate. Some 100 companies repatriated about $300 billion, avoiding about $90 billion in taxes.

But instead of hiring more workers, many of the participating multinationals had mass layoffs, especially drug companies. Pfizer, the world's largest drug company, repatriated $36 billion at the discounted rate, while laying off 8,000 employees in 2006 and announcing layoffs of 10,000 more. Eli Lilly and Schering-Plough also repatriated billions while laying off thousands. Technology companies did the same. Hewlett-Packard, for example, repatriated $14.5 billion in 2005 and laid off 14,500 workers. In some instances, the corporate tax savings were more than enough to cover the severance costs and other expenses of the layoffs.

And in a final twist, the law has encouraged the use of offshore tax havens by American corporations, which are once again piling up their profits beyond the reach of the Internal Revenue Service in anticipation of the next tax holiday.

Among other things, $90 billion could provide a lot of health care and bolster unemployment compensation for American workers. Instead, that sum has gone mainly into the pockets of the already rich. Where is the politician who will take an over-my-dead-body approach to future tax holidays and who will broach the need for new corporate taxes?

When will politicians learn?

The full NYT story is here.