With the US Government Pay-For Rules, a key focus must be on finding wise ways to fund job creation. Here's what I think is a very wise funding vehicle.
Under US generally accepted accounting principles, public companies are required to disclose in their footnotes included in their annual reports filed with the SEC, their best estimate of what they owe in total to all taxing authorities for all of their open tax audit years. The bulk of these amounts disclosed relate to the amounts owed to the US Federal Government. Also included in this total are amounts owed to State Governments and to Foreign Governments.
I did a very quick review of the footnotes of some large US corporations, and also some large foreign corporations with heavy US operations, and from just my very limited review, I found 384 companies that had amounts owed for all open tax audit years in excess of $100 mil each, that in the aggregate totaled $268.1 bil at the most recent fiscal year end, which for the majority of these companies was December 31, 2009.
It takes a very long time for these companies to settle their tax audits with the IRS and other taxing authorities. For the largest Dow companies, there was an average of more than 8 years of open tax audit years.
Huge US Multinational Corps make up a large portion of the Aggregate Balance of Total Tax Reserves for all Corps having Tax Reserves above $100 mil each. Here is a stratification of these Corp Tax Reserves by size:
..Tax Reserves.....
Above $5 bil…………......12 Corps…..$82.1 bil….30.6% of total
$2 bil to $5 bil…………...20 Corps….$56.9 bil….21.2% of total
$1 bil to $2 bil…………....24 Corps….$31.5 bil….11.8% of total
$500 mil to $1 bil……....49 Corps….$35.5 bil….13.2% of total
$250 mil to $500 mil….93 Corps….$32.7 bil….12.2% of total
$100 mil to $250 mil…186 Corps….$29.4 bil….11.0% of total
All above $100 mil…….384 Corps..$268.1 bil…100.0%
Clearly, the focus here in this funding should be on the top of the stratification above, to get the most bang for the buck.
Here are the Tax Reserves, including accrued interest, on the books of the largest US Corps at the end of each of the last three years:
………………………………….........Fiscal Year End………
………………………….........2009-10…2008-09..2007-08
……………………………….......( In billions of dollars)
1.....Pfizer………………….......9.6………..6.7………6.7
2…..JP Morgan Chase……....9.0……….8.2………6.4
3…..GE…………………….........8.7……….8.0……….7.3
4…..AT&T………………..........7.5……….8.0……….7.6
5…..Microsoft…………….......7.3……….6.0………3.5
6…..Bank of America…….....6.4……….4.2……….3.7
7…..General Motors……......5.8………..3.1……….3.1
8…..Merck……………….........5.7………..5.4……….6.1
9…..Wells Fargo…………......5.7………..9.1……….2.9
10….AIG…………………........5.7………..3.8…….....1.6
11….Exxon Mobil………......5.5………...5.6……….5.8
12….IBM…………………........5.3………..4.2………..3.3
13….Morgan Stanley……....4.4………..3.7………..2.9
14….Entergy……………….....4.1………..1.8………..2.5
15….Verizon……………….....4.0………..3.2………..3.5
16….Citigroup……………......3.4………..4.1………..4.3
17….Chevron………………....3.4……….3.0………...2.4
18….Oracle………………........3.1……….2.7………...2.1
19….Tyco Electronics……...2.9……….3.1………...3.0
20….AstraZeneca…………...2.9……….3.1………...3.0
21….Sanofi-Aventis………...2.9……….2.5………...2.4
22….Cisco Systems………....2.8……….3.1………...2.7
23….JNJ……………………......2.7……….2.2………...1.8
24….Sony………………….......2.6………..2.9………...3.0
25….Procter & Gamble……..2.5……….2.7………...3.4
26….Dell………………….........2.3………..1.9………....1.4
27….Time Warner…………...2.2………..2.2………...1.8
28….PepsiCo………………......2.2………..2.1………...1.8
29….Abbott Labs………….....2.2………..1.5………...1.1
30….Goldman Sachs………....2.1………..1.5………...1.1
31….Boeing………………….......2.1………..1.7………..1.4
32….Hewlett Packard………...2.0………..2.3………..2.3
Total Top 32 above $2 bil.139.0……122.6…….104.5
…..Percentage Increase…...13.4%....17.4%
.....................................(in billion of dollars)
Top 32 above $2 bil each.........139.0
33...Energy Future Holdings.......2.0
34...Covidien...............................1.8
35...Comcast...............................1.7
36...Exelon..................................1.5
37...ConocoPhillips.....................1.4
38...Swiss Reinsurance Group......1.4
39...American Express.................1.4
40...Boston Scientific...................1.3
41...Google..................................1.3
42...Honda Motor........................1.3
43...Amgen.................................1.3
44...Apple...................................1.3
45...Walmart...............................1.3
46...Accenture............................1.2
47...Starwood Hotel & Resort......1.2
48...Ford.....................................1.2
49...Eli Lilly.................................1.2
50...Schlumberger.......................1.2
51...Credit Suisse.........................1.2
52...Public Service Enterprise......1.2
53...Johnson Controls..................1.1
54...Edison International.............1.0
55...Kraft......................................1.0
56...Bristol Myers Squibb.............1.0
Total all 56 above $1 bil each...170.5
I think the way I would do the US job creation funding here is to require a higher percentage of tax deposits on open RARs on the companies with the larger liability balances for Tax Reserves.
Perhaps, something like this makes sense. By the end of the ten-year CBO scoring period, the cumulative tax deposits on all open RARs should be the following percentages of the Tax Reserve Balance, exclusive of cumulative tax deposits, on the books of each corp at the end of the ten-year CBO scoring period.
Cumulative Minimum Required Tax Deposits as a percentage of the Balance of the Tax Reserve at the end of the ten-year CBO scoring period:
.....Tax Reserve Balance.........Required Minimum Deposit %
Corps above $10 bil then…….40% of Tax Reserve Balance
Corps $5 bil to $10 bil then…30% of Tax Reserve Balance
Corps $2 bil to $5 bil then…..20% of Tax Reserve Balance
Corps $1 bil to $2 bil then…..10% of Tax Reserve Balance
And the above percentages could be staggered in over the ten-year CBO scoring period. For instance, for a Corp with a Tax Reserve Balance of $1.0 bil today, it would only need to make a tax deposit of 1% of this $1.0 bil, or only a minimum of $10 mil, by the end of year 1.
The positive CBO scoring over the next ten years here will be just huge.
Assuming 10% average annual growth per year (which is conservative since the actual annual growth in Tax Reserves balances of the largest Corps in the most recent year is a much higher 13.4% above), $1.000 bil today is equal to $2.594 bil in ten years, the end of the ten-year CBO scoring period. The above 56 Corps today with Tax Reserves above $1 bil each have aggregate Tax Reserves of $170.5 bil. In ten years, at 10% growth per year, this Tax Reserve for these 56 Corps grows to $442.3 bil.
However, the CBO positive scoring for the next ten years will be for more than just the above 56 Corps in the $1 bil and above Tax Reserve category now. If you conservatively assume that the average annual growth in the Tax Reserve Liability Account is 10% per year, then on average, a Corp with a $386 mil Tax Reserve Balance now will hit the $1 bil minimum threshold in ten years, the end of the CBO scoring period. There are currently 135 Corps with a Tax Reserve balance presently of at least $386 mil.
Also, there weren't very many foreign companies included in the 384 with Tax Reserves I have shown here. The majority of large foreign corps, with heavy US operations, follow International GAAP, rather than US GAAP. Thus, they generally do not disclose the amount of the Tax Reserves they have on their books. But clearly, under my proposal here, these large foreign corps should also be required to make the same tax deposits as large US corps, thus increasing substantially the upfront positive CBO scoring over the next ten years.
For these companies making these tax deposits, there would be no earnings charge to them since these estimated liabilities are already recorded on the books. These companies would be simply partially paying, on a staggered-in basis over the next ten years, a small portion (10% to 40%) of what they agree they owe the IRS.
I think it is only right that these Big US Corps make estimated deposits on their Tax Reserves on a staggered basis. These Big US Corps played a key role in creating the 2000 Lost Decade, along with the related disastrous financial aftershocks on the US economy. Thus it is only fair that they should help the US get out of its horrible jobless recovery.
I think this above massive amount of funding should be used for the desperately needed US job creation. President Obama's exceptionally wise three-pronged economic plan includes 100% equipment expensing, making the research tax credit permanent, and even enhancing it, and $50 bil of Transportation Infrastructure Investments. It's clearly a winner.
I find it interesting that so many "economic pundits" haven't focused on the real reason the US stock market has moved up so markedly in the past couple of months. It's all about the "smart money" making the objective assessment that Obama's three-pronged economic plan is a clear winner. The really smart money doesn't bias its economic assessments by Party politics. It just coldly looks at the facts and makes honest interpretations of the economic impact. That's why it's called "smart money".
However, even though the Obama economic team's three-pronged economic initiative is clearly superb, it doesn't mean it can't be improved. The really smart money knows that Obama is open to excellent ideas from anyone, including from Republicans, to make his economic plan even better. And anytime it comes to money, Republican interest is sparked, and they do have some really good ideas for effective job creation.
As for me, when you have a Great Recession, that has continued unabated for such a long time, I think it is far better to risk overstimulating the US economy, rather than continuing to understimulate it. Since there is so much additional funding here from this tax deposits on IRS open RARs funding vehicle, I would consider the following additions to bolster even further Obama's already very wise three-pronged economic plan:
…..Massive additional green energy tax credits
…..Additional infrastructure investments above the $50 bil, with a clear green emphasis
…..Much more accelerated tax depreciation on both new and existing manufacturing facilities. One way to do this would be to have the first ten years of tax depreciation under the present tax rules to be 100% tax deducted in the first year. And then you could reduce the number of years for all tax deprecation after ten years presently. Such an approach yields substantial accelerated tax depreciation of manufacturing building costs, but with very little, if any, CBO scored cost.
…..Higher tax incentives for building and building improvements in the Gulf Area impacted by either Katrina or by the BP Oil spill. Included here would be rental property, lodging, retail, restaurant, and entertainment facility improvement costs.
...Businesses should get very healthy tax credits for hiring military veterans, for hiring the very long-term unemployed, and for hiring anyone where it can clearly be determined that the job has been backshored (i.e. job shipped back from overseas to the US). However, there should be job retention requirements by the businesses granted this tax credit, or else this upfront tax credit is subsequently recaptured by the US government.
...Massive reductions of loan principal balances of mortgage loans for principal home residences that are either underwater or only 10% above water. The US government infrastructure bank would pay fair market value for the portion of the loan balance of all first, second, and higher mortgage loans held by any financial institution, including those held by Fannie Mae and Freddie Mac, where the total principal loan balance, at all financial institutions, of a home is 90% or more of the fair market value of the home. The US infrastructure bank would write down to its purchase price the mortgage loan principal balance of these partial loans bought from financial institutions. The US infrastructure bank should start this mortgage partial loan acquisition program with underwater mortgages in States which have the highest percentage of underwater mortgages: Florida, Nevada and California. Financial institutions selling these partial loans to the US infrastructure bank would be given tax incentives (for instance, faster loan loss tax deductions). Smaller financial institutions selling these partial loans to the US infrastructure bank will be granted additional tax incentives for selling a portion of its loan principals on these homeowner loans. Fannie Mae and Freddie Mac should be recapitalized, with the necessary capital infusions, in such a way that they will be financially viable entities on a stand-alone basis. The CBO scoring of the US government infrastructure bank should be markedly positive since the subsequent interest income will substantially trump the subsequent loan losses, as long as the loans that the US infrastructure bank buys are set at maturities of ten years or less. Long-term US Real GDP growth, long-term unemployment and underemployment, and the US Debt five and ten years out will all not be at acceptable levels until this horrible underwater home mortgage problem is fixed. Just continuing to patch this immense problem does not work.
...To help solve, on a long-term basis, the horrible Shipping of US Jobs Overseas, if a US Corp accumulates an Unremitted Foreign Earnings amount in excess of a certain amount (perhaps, of in excess of say $15 bil to $25 bil...people a lot smarter than me can figure out the best amount here), for US federal income tax purposes, a foreign earnings repatriation to the US of this excess amount would automatically be triggered, with the resultant US federal income tax paid.
