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April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

End this crazy tax: It will boost the economy

By Morgan Housel





The skinny on repatriation --- it's making sure America doesn't grow fat


JewishWorldReview.com | Cisco Systems Inc. reported record quarterly earnings last week, and the company now holds $46 billion in cash and short-term investments. That's great news for Cisco. But it's not great news for the U.S. economy. After earnings were released, CEO John Chambers told CNBC that until the U.S. tax code changes, Cisco is effectively done acquiring U.S. companies and expanding its domestic work force.

The reason is that Cisco holds the majority of its cash overseas, and bringing it back to America would mean getting bulldozed by the U.S. tax code. "Wherever we acquire is where our head count growth is going to be," Chambers said. "If the majority of our money remains outside the U.S., and this depends on tax policies, that's where you'll see us acquire going forward."



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Here's the skinny. If an American company earns profit in another country, it has to pay that country's income taxes. But if it then chooses to bring that cash back to America, it owes U.S. taxes, minus a credit for foreign taxes already paid. So imagine Cisco earns $1 billion profit in Switzerland. It will owe Switzerland's 8.5 percent corporate tax. But if Cisco then brings the remaining $915 million back to the U.S. to pay dividends or expand its work force, it will owe an additional 26.5 percent to the IRS -- the difference between Switzerland's 8.5 percent tax rate and America's 35 percent rate. It's called the repatriation tax.

Cisco's other option is to keep the money in Switzerland (or in whatever country it earns overseas profit). Not surprisingly, that's what most global corporations choose to do. As of last March, U.S. companies held about $1.2 trillion in total cash. But almost 60 percent of that was sitting in foreign bank accounts, according to Moody's. Some companies hold the vast majority of their loot abroad. About 80 percent of Oracle's cash is held overseas. Apple holds close to 70 percent of its cash outside the U.S.

There are two crazy things about the repatriation tax. The first is that it doesn't raise much money for the U.S. Treasury. Using the most bearish assumptions, the Joint Committee on Taxation estimates that ending the repatriation tax altogether would raise deficits by about $8 billion per year -- a rounding error measured against $2.9 trillion in total revenue. A separate estimate from the Congressional Budget Office shows that ending repatriation taxes would actually raise federal tax revenue, since companies would likely bring more cash home to pay dividends, which are then taxed. Either way, repatriation taxes have a trivial impact on the federal budget.

Second, the repatriation tax is virtually unique to America. Of the G-7 group of nations, only America exercises a repatriation tax. Among the 34 nations in the Organization for Economic Cooperation and Development, 26 impose a "territorial" tax system, where profits are taxed only where they are earned, with no repatriation owed when earnings are brought back to a company's home country. Two of the last holdouts, Japan and the United Kingdom, switched to a territorial tax system in 2009. When the competition is based in countries that use territorial tax systems, American companies are at a disadvantage. The easiest way for them to compete is to keep foreign profits in foreign bank accounts. The loser is the U.S. economy.

Congress allowed a repatriation holiday in 2004 as part of the American Jobs Creation Act. Corporations brought home more than $300 billion, according to the IRS. Yet with scant evidence that the holiday directly helped create jobs, lawmakers called the one-time deal a failure. Instead, every $1 of extra cash repatriated increased dividends and share buybacks by more than 90 cents -- a practice the law prohibited, but one that was nearly impossible to enforce since money is fungible. But so what? More than half of all U.S. households own equities. They benefit far more when corporate cash is used for dividends and share buybacks rather than hoarded in a bank account in Geneva.

The main argument against abandoning the repatriation tax is that it will entice corporations to ship business and jobs to countries that have lower tax rates. But they are already doing that. And it's a global economy -- the majority of S&P 500 earnings growth over the next five years will come from overseas, according to analyst Bob Doll. We can pretend it's otherwise, or move toward a more competitive tax code.

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Morgan Housel, a columnist at The Motley Fool, is a two-time winner, Best in Business award, Society of American Business Editors and Writers and Best in Business 2012, Columbia Journalism Review. He has no position in any stocks mentioned. The Motley Fool recommends Apple and Cisco Systems. The Motley Fool owns shares of Apple and Oracle.


Previously:


Medicare: A dangerously good deal

Economic future looks bright

The Biggest Threat to Your Portfolio (It's Not What You Think)

Bond Market Bull Run dead at 30



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