Hillary Clinton gave a big speech in Raleigh on her plans for the economy on June 22. It was full of Bernie Sanders-like rhetoric about “outrageous behavior” by business and Wall Street.
But it also included a dog whistle that only huge multinational corporations would hear, telling them that she plans to deliver on one of their greatest dreams and slash their longterm taxes by hundreds of billions of dollars.
Here’s what Clinton said:
Let’s break through the dysfunction in Washington to make the biggest investment in new, good-paying jobs since World War II. … In my first 100 days as president, I will work with both parties to pass a comprehensive plan to create the next generation of good-paying jobs. Now, the heart of my plan will be the biggest investment in American infrastructure in decades, including establishing an infrastructure bank that will bring private sector dollars off the sidelines and put them to work here.
An infrastructure bank to rebuild America’s tattered infrastructure is a reasonable idea, and was also proposed by Barack Obama when he was running for president in 2008. Certainly America’s tattered roads, bridges and sewers desperately need an upgrade.
The question is where the money for it would come from. Republicans would never let it be paid for with borrowed money, and in 2011 they blocked a proposal by Obama to fund it with a surtax of 0.7 percent on incomes over $1 million.
But last year, behind the scenes, Speaker of the House Paul Ryan, R-Wis., and Sen. Chuck Schumer, D-N.Y., quietly tried to lay the groundwork for a classic Washington, D.C., bipartisan solution — i.e., the kind of deal that both parties’ big donors adore and regular Americans would despise, if they ever heard about it.
Under U.S. law, multinational corporations based here theoretically must pay taxes on their profits earned anywhere around the world at a rate of 35 percent. However, they don’t have to pay U.S. taxes on overseas profits until they repatriate the money back to the U.S.
This creates incentives for U.S. multinationals to use financial engineering to appear to earn their profits in low-tax countries — for instance, Apple’s tiny Irish subsidiary is bizarrely profitable — and then leave the money overseas.
Congress granted corporations a tax holiday in 2004 that let them bring back their profits at a tax rate of about 5 percent, or one-seventh of what the normal tax law required. Clinton, then a senator from New York, voted for it, as did Schumer.
The incentives haven’t changed since then, so profits held overseas by U.S. multinationals have accumulated again and have now reached an incredible $2.4 trillion. That’s about 65 percent of the 2015 federal budget and 13 percent of the entire U.S. economy. If U.S. multinationals had to pay the statutory tax rate on that, they’d owe the government about $695 billion.
The prospective Ryan-Schumer deal doesn’t have many details. But it would change the law so that profits earned by U.S. multinationals overseas, including the $2.4 trillion overseas now, would be taxed whether or not they were brought back to the U.S. — while also radically reducing the tax rate on those overseas profits. This would essentially make the 2004 tax holiday permanent. That’s why Sen. Elizabeth Warren, D-Mass., has called such plans “a giant wet kiss for the tax dodgers.”
In the short run, both Trump’s plan and the Ryan-Schumer framework would provide a burst of tax revenue from the money collected on the $2.4 trillion currently overseas. In the long run they would significantly reduce U.S. taxes on multinationals. They would also, if they instituted lower tax rates for overseas profits than for those earned in the U.S., provide an even greater incentive for big corporations to use accounting shenanigans to appear to “earn” profits in other countries.
But how do we know this is what Clinton was talking about?
According to her platform, she will pay for increased infrastructure spending via some unspecified “business tax reform.” Despite promises back in December that she “will have more to say on her vision” about business tax reform, she’s been curiously silent.
However, when she met with the New York Daily News editorial board in April, she explained that the source of the infrastructure money “may be repatriation.”
Then there’s her statement this week that her infrastructure bank would “will bring private sector dollars off the sidelines and put them to work here.” That phrase — bringing corporate money “off the sidelines” — is a favorite of both Democratic and Republican elites to describe slashing the tax rate on overseas profits. For instance, Sen. Marco Rubio, R-Fla., used it in a Wall Street Journal op-ed, as did economists writing for the New America Foundation, a liberal think tank.
That’s why Clinton can honestly predict that she will “break through the dysfunction in Washington” and “work with both parties.” Both parties want to deliver a massive tax cut to their huge corporate patrons.