In an earlier posting (American Job Creation Act - not), I noted that so far that the tax breaks for repatriated earnings has yet to produce any evidence of increased investment in job-creating activities. Now, the Wall Street Journal has done its own analysis - and the answer is the same (Tax Break Brings Billions to U.S., But Impact on Hiring Is Unclear):
Most companies using the break have offered only broad outlines for how they intend to use their windfall. For the most part, they say they are using the bulk of the money for tasks such as paying down debt and meeting payrolls. Direct job creation rarely appears on the list.
Some companies are even bringing home piles of cash while continuing to downsize.
In fairness to the companies, it should be noted that money is fungible. It is difficult to track specific sources of investments. And money used to pay down debt frees up funds later on for investment:
Companies that beef up their balance sheets are stronger competitors and "better positioned to grow in the future," says Daniel Clifton, executive director of the American Shareholders Association, a group that lobbies for shareholder interests. He and others say there also is an indirect impact; for instance, companies using the funds to buy capital equipment may create jobs on factory floors for workers making those machines.
"It filters down into the broader economy -- by people who are making the equipment that's being bought," Mr. Clifton says. "It's going to continue to increase factory output. And so the people who are not repatriating are still getting jobs created."
However, I am generally leery of this trickle-down theory of investment. As I noted earlier, tax breaks are the most common form of industrial policy in the US - and the least transparent and the most difficult to assess.
The one-time nature of the program also creates what my conservative economist friends worry about: moral hazard.
Some analysts contend that by offering a one-year break, the law actually encourages companies to horde profits overseas in the future, since they are likely to expect this to happen again.
The American Job not-Creation Act is a perfect example of our non-investment and non-industrial policy: wonderful politics and dubious policy.
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