The Zombies are Coming! Again!

There are certain ‘zombie’ ideas that, no matter how many times you put them down, keep shuffling back to wreak havoc.  One of them is ‘let’s reduce the size of [government][a department] by, um – oh!  I know! — instituting a hiring freeze.’  So, for example,  the Republicans, who hate the IRS for exposing right wing tax scams involving 503 (c) organizations, keep cutting its budget year after year and freezing all new hires, while at the same time decrying budget shortfalls and urging the IRS to improve customer service.

Puzzled?  Of course you are, because it’s loony.  So what happens when you freeze hiring?  The low paid folks, the secretaries, clerks, mailroom people move on to other jobs while the highly paid remain ensconced at their desks until the inevitable day when things start grinding to a halt.  I’ve seen it several times over the years.  Eventually it is quietly dropped and the politicians hope no one will notice.

But all that is a minor annoyance compared to the false promise of another gee-whiz idea: the corporate tax holiday aimed at repatriating the trillions companies have stashed overseas.  That’s the zombie Trump is digging up now, thinking that all that money will now be taxed, although at a drastically lower rate, and can be used for infrastructure projects and, better, to induce companies to invest in the country that made them rich in the first place.  To that end, Trump has reportedly talked to Apple’s Tim Cook to make a deal.  Sound reasonable?  Remember that insanity has been defined, tongue in cheek, as doing the same thing over and over expecting the results to be different.

In this case, tax breaks aimed to bring all that moola home was tried under the ’04 American Jobs Creation Act.  And bring much of it home it did, to the tune of over $360 billion. The fly in that ointment is that companies, mostly big pharma and tech, didn’t use it to create jobs, build factories or increase research and capital expenditures.  Nope.  What they did was buy back stock to goose their earnings per share (great for execs holding options) and increase dividends to the shareholders.

The net result for the economy?  It cost the Treasury $3.3 billion in lost revenue, and the fifteen biggest benefactors of our largess, according to the Wall Street Journal, actually cut just under 21,000 jobs and eased up on spending for research and development over the next six years.  Memo to Mr. Trump:  if this failed policy is passed, again, Apple will bring back some of its overseas money but will not build the big domestic plant that you hanker after.  And neither will anyone else.

President Obama, working with Ways and Means in Congress, had a better plan.  Tax overseas income and use the money for infrastructure projects as part of an effort to transition the U.S. tax code to a new international tax system.  Bottom Line: We don’t need ill-considered political fixes that sound good but simply reproduce the failed efforts of the past.

Sources: Wall St. Journal, Heritage Foundation, Center for Budget and Policy Priorities.


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