Put that many deal makers together, and it’s inevitable that their advocacy would take on the feel of a negotiation. They are offering President Barack Obama something very valuable. At the same time, the heads of the U.S.’s big multi-national companies are looking for something that could be far less palatable.
Here’s the give: Mr. Greifeld told an audience at the Brookings Institution in Washington on Monday that there is “uniform agreement” among the chief executives involved with the Fix the Debt campaign that the individual tax rates paid by these multi-millionaires should rise from the current 35 per cent.
That’s a huge boost for Mr. Obama. The president’s red line in negotiations with congressional Republicans over the fiscal cliff is that households that make more than $250,000 (U.S.) a year should pay higher rates. The endorsement of so many “job creators” can only help Mr. Obama’s cause.
But there’s something else for which the chief executives have “wide support,” according to Mr. Greifeld: a territorial tax system.
The White House will be less enthused about that message. The United States is the only big country that taxes the profits that its companies earn abroad. And it drives executives like Mr. Greifeld crazy.
“It’s not a coincidence that the last three acquisitions we’ve done were outside the United States,” Mr. Greifeld said. Those purchases were made with the “trapped cash” Nasdaq has earned overseas – and refuses to bring home because it faces one of the highest corporate tax rates in the world. (“We are not going to do it,” Mr. Greifeld said. “It’s just not going to happen.”)
The implication of Mr. Greifeld’s comment is that if not for U.S. tax policy, he would be investing more of the company’s profits at home. And perhaps in the case of Nasdaq, that’s true. Thing is, the evidence suggests the opposite.
Mr. Greifeld isn’t the first chief executive to come to Washington calling for a territorial tax system. The idea has some supporters. The Bush administration enacted a temporary holiday on international earnings as economic stimulus. Money came home, but most of it was used to reward shareholders or support ongoing operations.
“While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment,” the Congressional Research Service said in a report last year.
It is unlikely Mr. Geifeld will be deterred by academic studies. The Obama administration favours overhauling the tax code, and shifting the U.S. to a territorial regime – along with a lower corporate income-tax rate – will be part of the discussion. But the argument that a territorial tax will result in rush of investment will be met with a great deal of skepticism from Democrats.
Peter Orszag, an executive at Citigroup and Mr. Obama’s former budget director, told a conference in Washington on Friday that shifting to a territorial regime is a complicated issue for American lawmakers because the U.S. has far more multi-national corporations than other countries.
Adopting a worldwide system of business taxation would be the most efficient for the companies, and would allow them to better maximize profits. But with no assurance that higher profits will result in increased investment and jobs in the U.S., lawmakers have little incentive to change the system. Corporations would no longer be restrained from trying to book as many profits as possible in low-tax jurisdictions, while enjoying all the benefits of a base in the United States.
At a time when the government desperately is seeking money, adopting a territorial regime risks depleting corporate tax revenue. Mr. Greifeld’s negotiating skills are about to be tested.