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Common sense and life experiences, part three

Sep 04, 2017 08:30AM ● Published by Ben Scott

by John Masus

We continuously hear the same thing from our politicians: creating good paying jobs here in America. I bring this up because of some interesting statistics I recently read. According to the US Census Bureau, real wage growth appears to be anemic. US median household income was 8% lower in 2013 than in 2007, the year before the last recession. However, the Congressional Budget Office conducted their own study but with different results. Their study showed gains. So who to believe? I’m going with let’s create the climate to bring home American jobs.

About five years ago I wrote that, according to the Federal Reserve, non-financial US corporations were holding around $2 trillion in cash and other liquid assets overseas instead of bringing it back and putting it to work here in America. That number has now been estimated to be around $2.6 trillion and going up.* The corporations are not being unpatriotic. This situation is created by a tax code that at times simply doesn’t make any sense. Here is why this is happening.

Let’s say we are on the board of directors of a company with plants overseas as well as here in the US. We know that money is taxed where it is earned. If a company makes widgets in Asia, the money is taxed in Asia.

However, if our company wants to bring home that profit from overseas, the money could be federally taxed again at a rate as high as 35%.** So what to do? How would you vote as to what to do with that money? Well the prudent thing to do might be to leave the money in Asia and build another plant or simply let it accumulate until the tax climate changed for re-patriating the money (bringing it home).

As I see it we should be looking at this situation without blame but with a reasonable expectation that we can solve the problem once we know why it’s happening.

So how about this:

Since the US receives no taxes from this profit anyway, why not encourage corporations to bring home the money without tax or some nominal tax (5% or less) with the stipulation that the money must be used for reinvestment in plants and job creation here in the US?

The creation of good paying jobs and the resultant new taxes on workers income would be welcome news to workers, states and sections of the country destroyed by plant closing as well as the federal government in the form of more revenue through income taxes.

Wouldn’t this be something to work for and a good reason to come together politically? Instead of a lose–lose situation we should be working toward a win–win result.

Critics say a tax holiday was tried in 2004 and it didn’t work. That’s right, it didn’t. #1 there was no real firm stipulations as to what the companies should do with the re-patriated money, and #2 why would a corporation be expected to act on a short term tax holiday when we want them to make a long term commitment in plants, people and the ongoing costs of those commitments if the government didn’t have a long term commitment to the plan?

I may be oversimplifying but the fact remains, there is a lot of corporate money overseas not being used for job creation here in the US and we have no long term plan, tax or otherwise that encourages long term commitments.

That doesn’t solve the problem of companies moving jobs south of the border. Talk about jobs and taxes being lost. This is a priority and should be addressed through discussion with federal and state governments and their taxing policies along with corporate management, unions and local elected officials. Who is working on these things anyway? Where are the joint congressional hearings and the compromise?

It’s a changing world and new thoughts and solutions are needed.

*CNBC Nick Wells

**Tax information from CPA R. MacDonald & Assoc., Ltd. St. Charles, IL.

John Masus is an LPL registered principal with clients in 24 states. Securities offered through LPL Financial. Member FINRA/SIPC. Masus Financial Group, Ltd. is a Registered Investment Advisor and a separate entity from LPL Financial.

Masus Financial Group, Ltd. has been located in downtown Batavia for over 23 years. Email address: John.Masus@lpl.com

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