Monday, June 27, 2011

Bad (Hair) Day

Bad (hair) day for Rod Blagojevich; good day for the rest of us.

It is incredibly difficult to hold politicians accountable for unethical or illegal behavior. Politicians are slippery and calculating by nature, and, after all, they make up the rules of the game.

More important, incumbent politicians have an enormous advantage in a two-party political system plagued by earmarks and legislative gerrymandering. It is very difficult to roust sleepy voters to "throw the bums out." (What else explains Charlie Rangel, who might be in jail if he were not in Congress for the past 40 years?)

In rare cases, the justice system provides the ultimate "check" on political misconduct. Today was one of those days.

Early this afternoon, a Chicago jury found Blago guilty of enough crimes to keep him in stripes for the next 350 years. Although a "bittersweet moment" for U.S. Attorney Patrick Fitzgerald, the rest of us can savor good-old-fashioned accountability for Blago's enormous abuse of the public trust.

Congrats to prosecuting attorneys Reid Schar, Chris Niewoehner and Carrie Hamilton on the decision. They've invested several years of late nights and bad take-out food to make Blago the poster boy for sleazy politicians across the country.

Friday, June 24, 2011

Get a Real Job

The chair of the American Bar Association Section of Taxation wants tax advisors to get a real job. (Thanks to Paul Caron for archiving the PDF copy of the Tax Notes article.)

On June 9, 2011, Egerton mused that:
The goal that Congress ought to have is to put as many of us out of business as possible. Now I say that with full confidence that it's not going to happen," said Charles H. Egerton. Although Congress may stop short of completely restructuring the code, he said, "we'll have to reinvent ourselves. That's a price we need to be willing to pay."
Egerton's comments in an obscure industry publication for tax nerds won't receive much attention. That's a shame. I believe that Egerton is onto something. As he says, our "[Income Tax Code] is just an inscrutable mess. It is complex. It is largely inadministrable." And he's not even considering state tax rules and regulations!

Take a few moments to consider the bigger picture. In America, our quality of life is driven by our political freedom and economic prosperity. Our economic prosperity is driven by the creativity and innovation of our entrepreneurs, technologists and business leaders over the past two centuries. Sure, we had a good "business climate" to promote economic growth (stable rule of law, property rights, market-based capitalism, etc.). But within that temperate climate, Americans have built a remarkable economic engine. We have been really good at developing, financing, producing and marketing goods and services into domestic and international markets. Or more simply: making and selling things.

Where do tax professionals fit into that picture? What value do tax professionals add to the "commercial matrix" of development, finance, production and marketing? The answer may bruise the egos of practitioners and academics from both sides of the political spectrum. The answer is: absolutely none. With respect for your virtues, brothers and sisters, we are simply leeching off a "complex, inscrutable and inadministrable" regulatory regime.

So we have developed an army of tax professionals -- intelligent, earnest, focused men and women -- who contribute virtually nothing to the long-run evolution of the "real economy." As a nation, we allocate nearly half a trillion dollars to tax planning and tax compliance each year -- half a trillion dollars that could be used in more productive activities. Sure, some of us will argue that 'tax professionals help clients comply with the tax rules as they are, and that keeps more cash in the private economy where it will be invested more efficiently than cash in the government coffers.' However, that argument rings hollow. We aren't making things better by leeching off the commercial matrix. We shouldn't (and we don't) need an army of tax professionals to tend to the clients. We need a better, simpler tax regime. And we need more intelligent, earnest, focused men and women involved in the "real economy."

I believe that the tax community should take Egerton's challenge to heart, and begin working on serious proposals to "downsize" our ranks by drastically simplifying the U.S. tax regime. Many tax professionals will resist the challenge, because they earn a comfortable living. And let's face it: displacement from a specialty niche in tax would be socially jarring and economically painful for many. But no pain, no gain. We are currently part of the problem. One of our cultural legacies is our ability to troubleshoot problems. Perhaps the U.S. tax community can rise to the challenge.

Thursday, June 23, 2011

Worst of the Week (Everson)

Two editorials this week are competing for my inaugural "worst of the week" award. Yesterday, I discussed an opinion letter to the Wall Street Journal which expressed Thomas Geoghegan's controversial view on domestic business migration. Today, I'm discussing an editorial by former IRS Commissioner Mark Everson. (Thanks to Peter Pappas and Paul Caron for the lead.)

Second Nominee: Mark Everson

Everson seems to want to say something profound. Unfortunately, his editorial ends up reading as a series of non sequitors. It reminded me of a sci-fi movie with decent special effects but no plot. You walk away thinking: 'that editorial could have made sense, if there were any theme or continuity or relevant message.' After five years as IRS Commissioner, this is all we get?

In a nutshell, Everson suggests that greedy lawyers and accountants contributed to the 2008 financial crisis by abandoning their ethical moorings in pursuit of outrageous professional fees. But that's not quite right... The vast majority of lawyers and accountants represent clients who had nothing to do with the 2008 financial crisis. So let me try again. In a nutshell, Everson calls out greedy lawyers and accountants whose client base includes Wall Street firms and U.S. based multinationals. But, wait, that's not quite right either... Perhaps he suggests that greedy tax lawyers and complicit accounting firms destroyed the moral integrity of the law and accounting professions. Or that the GE tax department is undermining Obamacare. Or that the attorney-client privilege is an anachronism that should be cast aside by the Supreme Court 2.0. Again, 'that editorial could have made sense, if there were any theme or continuity or relevant message.'

I'll stop trying to condense the editorial into a single theme. He basically strings together eight different ideas:

(1) Attorney and auditors are no longer driven by ethics, professionalism and independence that long fostered the "integrity of capitalism." Instead, law firms and accounting firms are driven chiefly by the earnings of their partners. That means regulators cannot rely on these professionals to "check" corporate risk taking.

Two points here. The vast majority of attorneys and auditors work with an incredibly diverse group of clients. The vast majority of these attorneys and auditors display ethical behavior, professionalism and independence from their clients. Everson seems to be focused mainly on "BigLaw" attorneys and "BigFour" auditors whose client base includes Wall Street firms and multinational corporations. Talk about painting with too broad a brush.

Everson's insinuation that the BigLaw/BigFour do not check client risk assumption is absurd. Has he ever been subject to a BigFour audit? Has he tried obtaining an opinion from a BigLaw partner whose home is at risk for malpractice liabilities? Perhaps not, if he truly believes that the BigLaw/BigFour provide no "check" on client risk assumption.

(2) New lawyers at prestigious Wall Street law firms are overpaid.

I'm confused. What does this have to do with the professional decay that Everson previously alleged? Is there some evidence that cutting the pay of new associates will make them more ethical, professional and independent? And what does this have to do with the auditors? Are new BigFour auditors overpaid? Or is the point that BigLaw cannot support its highly-paid young associates without unethical practices?

Everson notes that, in 1948, his father graduated Harvard Law and took a job at a prestigious New York law firm earning $3,600 per year. A new associate at the firm today would make 40 times more than his father (call it $145,000).

Okay, but what happened to Ivy League tuition in the last 60 years? I quickly found data for Penn Law. Today's cost of tuition and fees: approximately $51,000. The 1948 cost of tuition and fees: $615. That means a law school education today costs 80 times more than a law school education in 1948, while new associates today earn 40 times more than new associates in 1948. Perhaps the law firms are exploiting young associates, or the law schools are exploiting law students, but none of this has anything to do with ethics, professionalism or independence from clients.

(3) In the good old days, lawyers and auditors "moving up the ladder, didn't expect to get rich." Wealth was reserved for business owners, corporate execs, talented investors and investment bankers.

This is just melodramatic. I don't know the historical relationship between BigLaw profits per partner and the income of their high-net-worth individual clients (or senior execs at their corporate clients). However, I'd be surprised if it has changed materially over the years. BigLaw attorneys and BigFour auditors make good money for long, high-stress days and nights, but they don't capture the economic premiums of Fortune 500 execs or technology founders (among other high-net worth clients).

(4) Lawyers' and accountants' "core mission" has changed. They used to help clients adhere to professional standards and follow the law. Now they focus on "growing billings" to support lavish profits per partner.

Another stretch. Accountants are focused on numbers, not "helping clients follow the law." For example, if a client is fined for violation of environmental regulations, an auditor must review how the client booked resulting liabilities/penalties. The auditor's role is to confirm that the client's financial reporting of the incident is materially correct. The auditor's role is not to help prevent the underlying environmental violation.

Lawyers provide legal services to clients across a range of matters. I'm not aware of any BigLaw firms which systematically conspired with clients to break the law. If it happened, our 24/7 media cycle will inevitably uncover the conspiracy.

(5) Corporate clients are unwilling to pay exorbitant legal fees (in excess of $1,000 per hour for certain BigLaw partners) for "conservative" legal advice. As evidenced by a recent article about GE's tax department, lawyers and accounting groups are now viewed as profit centers rather than compliance officers.

Sure, legal fees charged by seasoned partners at elite BigLaw firms are pretty shocking. During law school in the early '90s, one of my professors charged $1,500 per hour ($2,200 in today's dollars) to serve as an expert witness in various legal proceedings. That shocks me to this day! The point is: legal fee inflation has nothing to do with an attorney's ethics, professionalism or independence from his or her clients.

The point about GE and "tax departments as profit centers" is wildly exaggerated. The vast majority of U.S. businesses cannot and do not use their tax departments as "profit centers." Their tax departments are primarily focused on accounting for income taxes and tax compliance. As a former IRS Commissioner, Everson should know better.

(6) KPMG is a poster child for the "new norm" of unethical behavior.

No, the unethical decisions of a few senior execs at KPMG does not taint the character or values of thousands of hard-working attorneys and auditors not engaged in marketing of tax shelters. Give me a break.

(7) Congress should re-assess the attorney-client privilege as applicable to corporations.

Seriously? Now he's probably focused on taxes again. The ACP is effectively obsolete in light of new IRS Schedule UTP for corporate taxpayers. (And I note that tax planning did not cause the 2008 financial crisis!)

(8) Businesses should change their compensation structure for finance and legal execs, eliminating reliance on equity compensation.

Now, Everson simply lost me. There is a point here that might be worth exploring in a different blog post. But it's not worth further time for now.

* * *

So which editorial is the Worst of the Week? Geoghegan or Everson? Let me know what you think.

Wednesday, June 22, 2011

Worst of the Week (Geoghegan)

Two editorials this week are competing for my inaugural "worst of the week" award. I'll discuss one today and the second tomorrow.

First Nominee: Thomas Geoghegan

Boeing is in a spat with the National Labor Relations Board (NLRB) over a decision to open a $1 billion facility in South Carolina to manufacture its new 787 Dreamliner aircraft.

On Monday, the Wall Street Journal published an opinion piece by Thomas Geoghegan. Geoghegan, a lawyer in Chicago, believes that Boeing's case is a "teachable moment." Specifically, Goeghegan remonstrates against business migration from higher-cost urban areas (like Chicago and Seattle), to lower-cost U.S. states (like South Carolina or Louisiana).

Geoghegan relies on an anecdotal experience with Outboard Marine Corporation to conclude that "when major firms move South, it is usually a harbinger of quality decline." He suggests that Southern union-busting has resulted in inferior schools and, in turn, "poorly educated and low-skilled workers that are simply unable to compete."

After highlighting the mental deficiencies of Southern rednecks, Geoghegan loops back to Boeing. In a revelation that will surprise Boeing shareholders, Geoghegan asserts that:
Boeing is not a product of the free market—it's an extension of the U.S. government. Over the years, our taxpayers have paid to create a Boeing work force with exceptionally high skills. That work force is not just an asset for Boeing—it's an asset for the country. Why should the country let Boeing take it apart?
So let me sum up the argument. Business executives should no longer have the economic freedom to deploy investment capital based on an analysis of commercial risks and opportunities. Domestic business migration from higher-cost locations to lower-cost locations is economic suicide and will accelerate the collapse of our economy and standard of living. Super-smart labor lawyers (like Geoghegan) and regulators (like the NLRB) will prevent businesses and their shareholders from committing aforementioned economic suicide. Meanwhile, Southern rednecks can keep themselves busy wrangling alligators and trading food stamps for NASCAR tickets.

In all seriousness, Geoghegan's editorial is disturbing on several fronts. It is blatantly condescending towards men and women in the South. (I'm not sure how Geoghegan defines "South," but I'm guessing "South of the Mason-Dixon line.") It reflects an economic authoritarian philosophy that the rules of the game should be stacked in favor of "enlightened Northerners" (who, by the way, are more friendly towards unions) and against their "unevolved Southern cousins" (who, by the way, favor "right to work" policies). Moreover, it is painfully detached from economic reality.

Geoghegan apparently believes that the cost of an employee solely reflects the productivity and quality of that employee. Hence, an employee based in Chicago that earns $28 per hour, is more productive and performs higher-quality services than an employee based in Louisiana that earns $14 per hour. But most of us understand that labor costs are related to the underlying cost of living in a given area. To pay the bills, those of us living in higher-cost urban areas need to earn relatively higher incomes than those of us living in lower-cost rural areas. Hourly wage differentials tell us nothing about the educational background, motivation or performance of individual employees.

As Geoghegan is probably aware, a Harvard law grad working as a corporate attorney in New York City would charge higher rates than a Harvard law grad working as a corporate attorney in Miami. (Let's assume that both law grads are twin sisters, and that they had identical educational backgrounds before Harvard.) Is the Miami lawyer paid sub-par wages because she spends her day hunting raccoons and eating fried Twinkies? No, the pricing differential simply derives from market economics (including a lower cost to do business in Miami relative to New York City).

To use a more concrete example, compare the fates of domestic auto manufacturers and their foreign counterparts with U.S. manufacturing facilities. Under the weight of union contracts, Detroit automakers GM and Chrysler were forced into bankruptcy and bailed out by taxpayers. Their foreign counterparts, with non-unionized workforces in various Southern states, survived the Great Recession without taxpayer support (thanks to leaner cost-structures and more operational flexibility).

Although the Journal can be commended for publishing a diversity of views, I wonder if this was a bait and switch. Locate a labor lawyer who believes in a centrally-planned economy (run by super-smart labor lawyers and the NLRB), and give him a platform to embarrass himself and discredit the NLRB by association.

Up tomorrow: Everson ... Seriously?

Tuesday, June 21, 2011

Adult Supervision

California taxpayers are enjoying a day of schadenfreude (which goes nicely with a fresh Hefeweizen, as I'll explain below).

If you have access to the Internet, you've heard that California is a fiscal basket case lurching towards Greek-style insolvency. The latest chapter in California budgetary chaos pits a Democratic Governor (Jerry Brown) and Democratic Controller (John Chiang) against Democratic legislators.

Since his election in 2010, Brown has been negotiating a budget with Democrats and Republicans. The state continues to project large fiscal deficits and an unsustainable "wall of debt" in the next decade. Compounding the impact of the Great Recession, businesses are fleeing the state's oppressive regulatory and tax regime in droves.

To his credit, Brown has rolled up his sleeves and attempted to exercise some adult supervision of the legislators in the sandbox. He has proposed a mix of temporary tax extensions and spending cuts to balance the state budget and improve the overall trajectory of state finances. Brown hoped to bring the temporary tax extensions to a statewide vote through the ballot initiative process. However, he was unable to persuade Republicans to support a ballot initiative. (Republicans claim that Brown was unwilling to consider necessary reforms to the state's unsustainable pension system. We don't know what transpired behind closed doors.)

Unable to sway Republicans to support Brown's proposal, Democratic legislators enacted "Plan B" on Wednesday, June 15. Plan B was basically a variation of "kick the can down the road." After approving the plan, Democrats broke out a case of Hefeweizen to celebrate another year of accounting gimmicks.

The next day, Brown added insult to (hangover) injury by vetoing the Democratic budget. After taking an obligatory swipe at state Republicans, Brown described the Democratic budget as containing "legally questionable maneuvers, costly borrowing and unrealistic savings."

And now for the taxpayer schadenfreude. California voters approved a law last fall that permitted legislators to pass a budget with a simple majority vote but stripped them of pay for every day the budget is late. Today, Controller Chiang announced that the Democratic budget was defective, and, consequently, legislators would be working for free until they passed a balanced budget. Despite his party affiliation, Chiang did not give the Democratic legislators a free pass: "My office's careful review of the recently passed budget found components that were miscalculated, miscounted or unfinished."

Ballot initiatives are a big part of California's political and budgetary quagmire. However, in this case, the voters deserve a celebratory case of Hefeweizen for trying to impose some accountability on their state "political leaders."

Monday, June 20, 2011

Repatriation Holiday Part II (update #2)

Last week, I blogged here and here about a proposed tax break that would encourage U.S. multinationals to repatriate cash to the United States.

Today, the New York Times jumped on the bandwagon, publishing an article by David Kocieniewski ("Companies Push for Tax Break on Foreign Cash"). (Note: the Kocieniewski article refers to calendar year 2005; although the underlying legislation was enacted in October 2004, most taxpayers brought cash home from their foreign subsidiaries during 2005.)

Although the Kocieniewski article echoes several of my observations, it contains additional color on the 2004 repatriation holiday:

- 800 corporations took advantage of the repatriation holiday

- According to this study by the NBER, they repatriated $312 billion

- An astonishing 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks

- 60 percent of the benefits went to just 15 of the largest U.S. multinationals

- According to Kristin J. Forbes, a professor of economics at MIT’s Sloan School of Management (and a member of President Bush’s council of economic advisers), “[f]or every dollar that was brought back, there were zero cents used for additional capital expenditures, research and development, or hiring and employees wages”

As I mentioned in my original post, Big Pharma was a major beneficiary of the 2004 legislation. The Kocieniewski article explores certain actions by Merck, which used dividends from its foreign subsidiaries to support dividends and stock buybacks while cutting jobs in the United States. Members of Congress, please repeat after me: "cash is fungible ... cash is fungible ... cash is fungible."

I don't fault the large tech or pharmaceutical companies that lobbied for the 2004 legislation. Nor do I fault the U.S. multinationals that brought offshore cash back to the United States at a 5.25% rate. (Compliance with existing tax laws is not "corporate tax avoidance," a topic that I will discuss more extensively in future posts.)

I do assign fault to the Bush administration and the members of Congress (Republican and Democrat) that enacted the 2004 legislation. The 2004 repatriation holiday was bad tax policy. Perhaps it was motivated by "positive" wishful thinking, but it seems to have been motivated by "stick your head in the sand" wishful thinking. Or, more likely, well-timed political donations to grease the Congressional wheels. We don't need a sequel.

I'll conclude this post with by repeating the conclusion from my last post. Any repatriation incentives should be linked to comprehensive income tax reform, not enacted out of desperation to "do something."

Friday, June 17, 2011

An Encouraging Vote to Kill Ethanol Subsidies

In a surprise development, the Senate yesterday approved an amendment that would kill the ethanol tax credit and repeal the import tariff on foreign ethanol. I'll refer to the tax credit and import tariff collectively as "ethanol subsidies."

Cheers to Tom Coburn (R-Okla.), who drove the effort to repeal the ethanol subsidies, and Dianne Feinstein (D-Calif.), who co-sponsored the amendment. Jeers to the Obama administration, and Charles Grassley (R-Iowa) (the most vocal advocate of ethanol subsidies), who refused to support the measure.

The vote represents an encouraging display of bipartisan cooperation (or "ethanol miracle," if you're feeling melodramatic). 37 Republicans joined 38 Democrats and two Independents to support the measure. Despite the urgency of the challenges facing our nation, we have rarely witnessed bipartisan cooperation on any meaningful policy issue in recent years. Although this was largely a symbolic victory, it demonstrates that sound policy can trump special-interest politics in a time of fiscal emergency.

The ethanol subsidies are an example of a bad policy that refuses to die. The federal government has subsidized the ethanol industry since the 1970s. Successive administrations have pandered to the farm states and environmentalists, shifting the rationale for subsidies as the political climate changed. Team Gore argued that corn-based ethanol results in higher energy output and lower carbon output than petroleum-based gasoline. (He has subsequently reversed course and indicated that his support for ethanol was politically motivated.) Teams Bush and Obama have both argued that ethanol can move us towards the elusive dream of "energy independence." Team Obama is also concerned about the "jobs argument," i.e., that reduction in ethanol subsidies will reduce the number of "good American jobs" in the ethanol industry.

Although economists have grumbled about ethanol subsidies for a decade (see Ed Dolan's blog here and here for a good discussion), the U.S. Government Accountability Office directed a spotlight on the subsidies in a report earlier this year. The GAO projected that the cost of the ethanol tax credit would increase from $5.4 billion in 2010 to $6.75 billion in 2015. The GAO characterized this expenditure as "duplicative," in light of renewable fuel standards that will phase in over the next decade.

The ethanol subsidies demonstrate the power of special interests (in this case, a coalition of farmers, landowners, fuel producers and naive environmentalists) to capture windfall profits from unwitting taxpayers. The "ethanol coalition" has fended off repeal for years, despite analysis indicating that (i) corn-based ethanol has lower energy output and higher carbon output than petroleum-based gasoline and (ii) ethanol subsidies were materially increasing food costs to consumers. The import tariff on foreign ethanol is particularly maddening; why increase the cost of foreign ethanol to consumers if ethanol is "greener" than petroleum-based gasoline? And why increase the cost of foreign ethanol if domestic ethanol production is increasing food costs to consumers?

The Senate vote yesterday demonstrates that members of Congress can look across the aisle, lock arms with their colleagues, and move forward to eliminate special-interest boondoggles that we can no longer afford. Let's hope that Congress will build on this momentum in the days ahead, and that the Obama administration will catch up.

Thursday, June 16, 2011

Repatriation Holiday Part II (update #1)

Yesterday, I discussed H.R. 1834, the Freedom to Invest Act of 2011. See here for the text of the proposed legislation.

The proposal would "refresh" Section 965 of the Internal Revenue Code, enacted in 2004 to impose a 5.25% tax rate on earnings distributed by a controlled foreign corporation to its U.S. parent.

In today's edition, Tax Notes provides additional color on the wrangling behind the legislative scenes. Representatives Jared Polis (D-Colo.) (bill co-sponsor), Loretta Sanchez (D-Calif.) and Kay Hagan (D-N.C.) argued for the repatriation incentive. Sanchez and Hagan seemed to buy into the Stern theory, discussed yesterday ('we're desperate for government revenue and repatriation can't hurt').

Fortunately, it is not a done deal:
[L]egislators remain mixed on the tax break, with some worrying that the money will not be used to spur job growth. After Congress approved a repatriation holiday as part of the American Job Creation Act of 2004, several corporations brought back billions of dollars but later laid off thousands of workers. Pfizer Inc. repatriated around $37 billion and laid off about 3,500 employees. Ford Motor Co., which repatriated $850 million, let 10,000 people go.

Polis said to make repatriation politically palatable, lawmakers "want to be able to point to a direct, ironclad nexus of job creation." Polis said he supports that so long as it does not interfere with the overall goal of encouraging repatriation.
Is Congress capable of creating "an ironclad nexus of job creation"? Let's not hold our breath on that one.

Tax Notes reports that Dave Camp (R-Mich.), Ways and Means Committee Chair, does not support the proposal. I hope that Chairman Camp stays firm in his resistance to this bad idea for a sequel.

Earlier this year, Senators Ron Wyden (D-Ore.) and Dan Coates (R-Ind.) sponsored broader tax reform legislation (the Bipartisan Tax Fairness and Simplification Act of 2011, see here) which would include a repatriation incentive as a transition to a new tax system. Any repatriation incentives should be linked to comprehensive income tax reform, not enacted out of desperation to "do something."

Wednesday, June 15, 2011

Repatriation Holiday Part II: The Horror Continues

As the U.S. economy recovers from the Great Recession, U.S.-based multinationals continue to build large cash balances offshore. Some U.S. pundits and politicians view the offshore cash as a "holy grail" of economic stimulus. They propose a sequel to the "repatriation holiday" that Congress enacted in 2004. From a policy perspective, the original act was a bust. Let's hope that reason prevails, and Congress doesn't release the sequel.

(This will be a relatively short blog on a complicated topic that requires further elaboration.)

Tonight on CNBC, Larry Kudlow discussed a proposed repatriation holiday with Andy Stern, Former SEIU President, and Bob Lutz, Former Vice Chairman of General Motors. Interestingly, Stern -- a national Democratic figure -- argued in favor of a repatriation holiday, while Lutz -- a career industrialist -- argued against a repatriation holiday.

Stern's basic argument for a repatriation tax holiday is that 'it can't hurt to flow a trillion dollars back into the United States from offshore balance sheets.' He favors a holiday now because (i) it will probably create some U.S. jobs directly, (ii) it will help some multinationals shore up underfunded U.S. pension plans, and (iii) although much of the cash may be used for dividends and share buybacks, some of the dividends/buybacks will be taxable, increasing tax revenue to desperate federal, state and local governments.

Lutz argued that the 2004 holiday failed to stimulate the economy or create jobs. Moreover, Lutz noted that the 'trillion dollar' figure is an exaggeration. On that point, Lutz emphasized that the "strings attached" to a tax holiday would deter many corporate executives from repatriating cash. (A current proposal, H.R. 1834, would effectively penalize corporations that repatriate cash without maintaining existing U.S. employee headcounts.)

I'm on Lutz's side of this policy debate. The 2004 holiday was a total bust. Two points escaped policymakers in 2004:

First, cash is fungible. Although multinationals repatriated cash to the United States, they did not use the "offshore cash" to expand their U.S. business activities. They shored up pensions, and they increased dividends/buybacks, but those uses of cash did not have a stimulative impact on the overall economy. (Technically, a multinational that repatriated cash was required to implement a "domestic reinvestment plan" or "DRIP" to document use of the cash within the United States. Economic analysis suggests that the DRIPs were droops.)

Second, a huge amount of offshore cash was (and is) controlled by multinational tech and pharma companies (think Cisco, Microsoft, Pfizer). Although the tech and pharma industries are robust engines of growth, they have low external leverage ratios and are not cash constrained in the United States. If they want to build factories or hire employees, they have existing sources of financing to achieve those objectives.

Unlike the tech and pharma industries, America's small- and mid-size business managers are not sitting on buckets of offshore cash. Another repatriation holiday may have some indirect benefits for these businesses, but no direct benefits. It's simply not the "holy grail" that its advocates would suggest.

We need fundamental corporate income tax reform, including lower tax rates on all business income. A tax holiday would make reform more difficult, because repatriation is a significant lever in the overall policy debate. Let's hope Congress leaves the sequel to 2004 on the cutting room floor.

Taking the Plunge

After months of procrastination, it's time to enter the tax blogosphere.

Does the web need another blog discussing taxes, politics and economics?

Maybe not. Most of us are suffering from information overload. Many of us have to make a conscious effort to unplug, relax, and avoid the Three Ps (pundits, politicians, and partisan rhetoric). All of us have better things to do, when push comes to shove.

For me, however, now is the time to take the plunge and launch Tax Didactic. If you have stumbled across my blog, I hope you learn something new or take a look at something old from a new perspective.

What gave Tax Didactic a jump start?

I've long been frustrated by bloggers, regurgitators and pundits ("BLURPs") who manipulate facts to drive an underlying political agenda. Each of us brings a subjective viewpoint to a given set of facts. No analysis is completely unbiased.

However, many of the BLURPs cross the line. I encounter far too much "analysis" that contains a "splash" of facts and a heavy "pour" of political opinion. The brazenly political BLURPs seem to become intoxicated by their own published detritus. On the right and the left, political BLURPs consult the same playbook. They mistake correlation for causation. They mutate facts to suit their political agendas. They pull quotes out of context. They have been enlightened with an economic Theory of Everything.

(On the left, the TOE begins in the 1980s. A lefty BLURP can trace all problems in America back to Reagan. Check out an interview with Richard Trumka, or an article by David Cay Johnston. On the right, the TOE dates back to the New Deal. That's vague and unsatisfying, but Obama needs a few years to ripen.)

Enough is enough. I'm jumping into the fray as a politically independent tax professional. I don't have all the answers, but I can discuss evolving issues without the bias of a political BLURP.

(Plus, my wife can only handle so many of my vents about tax policy.)