There is a $2 trillion question looming over a single aspect of the U.S. tax code.
This is approximately how much money is sitting overseas in bank accounts or other liquid vehicles owned by U.S. corporations. It is the property of American citizens, American pension funds and American college endowment accounts — and the property of all the other American folks who make up the great majority of the stockholders of these companies.
The answer is fairly simple. The President and his Democratic colleagues in Congress have insisted on tax laws that are unlike those in any other industrialized country in the world. As a practical matter, those laws make it incredibly foolish for an American company to bring its foreign income back to the United States.
Apple, for instance, is estimated to have more than $100 billion in cash sitting overseas. It cannot bring it home to help it pay for the development of the next great Apple breakthrough.
Under federal tax law, any company that returns foreign profits to the United States gets hit with a potential additional tax of up to 35 percent — beyond what it has already paid in taxes in the country where those profits were earned. This is the opposite of what all our competitor countries do.
They have what is called a territorial tax system. The profits are taxed where they are earned and not taxed when returned to the homeland to be used to expand the companies and help the nation’s growth.
The massive amount of cash that American companies currently keep overseas ends up being invested in foreign activities. It grows foreign economies and creates foreign jobs instead of returning here to be used to help our country’s economic expansion.
No CEO who wants to keep his or her job is going to pay a 35 percent penalty to bring cash back to the United States. Rather, they invest it in places like Switzerland, Singapore or Brazil instead of Keene, N.H., Kansas City or Denver.
This incredibly perverse situation is driven by Washington-based big labor’s belief that if the United States were to adopt a tax policy like the rest of the industrialized world, U.S. companies would move jobs overseas. But that is exactly what is happening under the present inane policy.
The president and his minions in Congress acquiesce to the directives from the labor leadership on all things political. It is ironic that people who shout so loudly about the need for jobs and economic expansion in America insist on policies that so obviously undermine those goals. There is no logic here, just knee-jerk policies and negative outcomes.
Overcoming this irrational inaction should be a slam-dunk for a president and Congress who claim they want to stimulate the economy. What could be more stimulative than having billions, if not trillions, of dollars taken out of European and Asian banks and pumped into our economy?
Since it is not apparent that the president or his followers in Congress will pursue this obvious opportunity in the face of labor’s opposition, let me suggest a middle ground:
Allow U.S. corporations to bring back funds without a tax penalty for the purpose of funding their pension obligations. How can labor and its political allies oppose this use of the overseas funds? It would ensure that millions of American workers have fully-funded pension accounts no matter the type of pension approach used.
It would be one step on the path to getting American funds in American hands. But, it should only be the first step. It should be followed by moving to a full territorial tax system, a system that would make it possible for America to benefit from our ever-growing position in international commerce.
Two trillion dollars is a lot of money to be leaving on the table — or, in this case, on foreign shores. Our nation could use it much more effectively.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and as ranking member of the Senate Appropriations subcommittee on Foreign Operations. He also is an international adviser to Goldman Sachs.