Re: [OPE-L] debate on labor aristocracy

Date: Mon Mar 26 2007 - 12:17:20 EDT

The following message is similar to the previous one, but is a bit
different, especially in the beginning. / In solidarity, Jerry

---------------------------- Original Message ----------------------------
Subject: First point. Re: FW: [OPE-L] debate on labor aristocracy
From:    "Steve Palmer" <>
Date:    Mon, March 26, 2007 11:01 am


Thanks for drawing attention to my article on the Labour Aristocracy.
Hopefully this will encourage some really concrete examination of the

Jurriann is completely right about the difficulty of interpreting figures
about foreign investment. But his example about tax havens needs to be
brought up to date.

First, the bourgeoisie moved to fix the problem of the money parked in the
tax havens - there was a tax break to let these companies bring the money
home free.
Second, it was supposed to be used to create jobs, presumably thanks to the
efforts of the Democrats, political voice for the labour aristocracy. Not
simply fill corporate coffers - 'You want your money - then pay off our
supporters as well'. A little crude, but you get the idea. This is part of
the deal-making going on behind the scenes.
Third, look how Dell is using its money - benefits *for non-executives*.

It's easy to make this complicated, but when you look at the
micro-economics, as it were, there are myriads of ways in which the loot
drips down, visibly.


Break on Foreign-Profit Tax Means Billions to U.S. Firms

By Jonathan Weisman
Washington Post Staff Writer
Friday, August 19, 2005; D01

Prompted by a one-time tax holiday on profits earned abroad, pharmaceutical
giant Eli Lilly and Co. announced early this year that it would bring home $8
billion to boost research and development spending, capital investments and
other job-creating ventures.

Six months into the year, Lilly's R&D spending had increased by 10
percent. But
that $134 million is only a small fraction of the $8 billion that is boosting
the company's coffers.

For proponents of the tax holiday, including the corporations that lobbied
it, Lilly proves that the tax provision is working. For skeptics, it means
opposite: A measure designed to create jobs is instead rewarding the
that are most adept at stashing overseas profits in tax havens, allowing them
to bring money home at a severely discounted tax rate. Once here, that
money is
simply freeing up domestic profits that would have been spent on job creation
and investment anyway.

"There will be some stimulative effect because it pumps money into the
economy," said Phillip L. Swagel, a former chief of staff on President Bush's
Council of Economic Advisers, which had opposed the tax holiday. "But you
as well have taken a helicopter over 90210 [Beverly Hills] and pushed the
out the door. That would have stimulated the economy as well."

A well-organized business coalition, led by pharmaceutical firms and
high-technology companies, pushed hard last year to get a long-sought tax
holiday into the corporate tax bill moving through Congress, called the
American Jobs Creation Act. Treasury Secretary John W. Snow objected that the
measure would unfairly benefit multinational corporations over domestic
while White House economists said it would produce no substantial economic

But with bipartisan backing, the business groups prevailed. Most companies
substantial cash holdings overseas have until the end of this year to bring
them home at an effective tax rate of 5.25 percent, rather than the standard
corporate tax rate of 35 percent.

So far, the effects have been muted. Martin Gonzalez, a principal at Banc of
America Securities, estimated that by midyear, $30 billion to $40 billion in
foreign profits had been brought home, just 10 percent of the $300 billion to
$400 billion he said could be repatriated by the end of the tax holiday.

Pfizer Inc. has led the pack with a promised $37 billion repatriation.
& Gamble Co. intends to bring home $10.7 billion, and Johnson & Johnson Inc.
has an $11 billion plan. Schering-Plough Corp. could bring back $9 billion.
This week, Hewlett-Packard Co. announced it will repatriate $14.5 billion in
the second half of the year, mainly for "strategic acquisitions," said Ryan
Donovan, an HP spokesman.

Robert S. McIntyre, a critic of corporate tax policy at Citizens for Tax
Justice, questioned why "strategic acquisitions" would create jobs.
"Usually it
means layoffs. That's the strategic part," he said.

Of the roughly 100 companies that disclosed permanently reinvested foreign
earnings over $500 million in 2002, 20 percent announced repatriation
plans in
the first three months of the year, said Susan M. Albring of the
University of
South Florida and Lillian F. Mills of the University of Arizona, who are
tracking the response. Fifteen percent said such plans were likely.

Under the law and subsequent Treasury regulations, the repatriated money is
supposed to go toward hiring and training, infrastructure development, R&D,
capital investments, or other job-creating activities. None of the money
be used to feather the nests of shareholders or bosses through executive
compensation, stock buybacks or dividend increases.

But Treasury officials warned from the beginning that such requirements were
virtually unenforceable, Swagel said.

For proponents of the policy, there may be no better example than Dell Inc.,
the personal-computer maker, which said it will bring home $4.1 billion in
foreign profits, in part to build a new manufacturing plant in Winston-Salem,

But of that $4.1 billion, just over $100 million is going to the plant, which
Dell says would have been built anyway. Dell spokesman Jess Blackburn said
other expenditures will include compensation and benefits for non-executives,
research and development, advertising, marketing, and some capital
outside North Carolina.

What it will not be used for is a $2 billion stock buyback announced April 6,
two months after the repatriation plan was announced, Blackburn said. That
buyback, although double the level initially planned for the firm's second
quarter, was merely the latest in a long series of buybacks used to boost
stock prices, he said.

"If we had never bought stock back and we bought stock back this year, I
raise my own eyebrows," he said.

In June, after the release of its repatriation plan, Pfizer said it would buy
back up to $5 billion in common stock.

No one is suggesting that companies are violating the law, said Pamela F.
Olson, who as assistant Treasury secretary for tax policy opposed the
provision. But the new cash from abroad has "loosened company balance
she said. Some of the new investments would not have been made without the
measure, but most of it is simply displacing money that would have been spent

"Money is in some sense always fungible," said Jonah Rockoff, a Columbia
University economist.

Another concern is the incentive the holiday may provide to tax shelterers.

Companies with operations in countries with corporate tax rates close to the
U.S. rate had nothing to gain, since they already can deduct taxes paid
from tax bills on repatriated earnings. Companies with profits in tax havens
with little or no corporate income taxes stand to gain the most.

It made sense that the provision was pushed by technology and pharmaceutical
companies, because so much of their profits come from "intangible" property,
such as patents and licensing, Mills said. "The profit from a new drug for
relief is easier to shelter in a low-tax country than is the profit from
and selling shirts," she said.

But such companies also have large R&D operations in the United States that
could be funded by repatriated profits.

"Companies are making the decision," Mills said. "'Would I ever have
repatriated these earnings?' If the answer is yes, they're taking it. If it's
no, they will not even want to pay a 5.25 percent rate."

"I study a lot. That is one of the responsibilities of every
revolutionary." Hugo Chavez.

This archive was generated by hypermail 2.1.5 : Sat Mar 31 2007 - 01:00:12 EDT