THE contours of the 19th and early 20th century were defined in part by a series of consequential British foreign policy and economic decisions. As recently as 2007-2009, British policy affected global outcomes: whereas deregulation of the City of London contributed to the severity of the global financial crisis, British leadership at the London G-20 summit in April 2009 ultimately proved a stabilising influence. Today, however, despite all the political theatre and dramatic rhetoric, Britain’s impending exit from the European Union – Brexit – really does not matter for the world.
The global economy may have hit a patch of uncertainty, but this is more due to the mercurial actions of US President Donald Trump, self-proclaimed “Tariff Man”, who seems intent on undermining the credibility of the Federal Reserve, disrupting supply chains, and negotiating through random pronouncements. The eurozone is struggling to break out of its prolonged agonies, but the fundamental problem is still bad banking practices and potentially unsustainable public finances in some member countries. While Brexit may well prove an unfortunate idea for many inhabitants of the United Kingdom, the likely impact is lower British growth, not a significant disruption of regional – let alone global – trade.
Today U.S. multinationals have more cash stashed overseas than ever before –according to several estimates, companies have more than $1 trillion in profits squirreled away in foreign subsidiaries. Many of the companies with the most money abroad – including powerhouses from Apple to Google to Pfizer – say they’d like to bring a large portion of it back to the U.S.
This comes with a catch, however. The companies want a temporary tax holiday – nearly identical to the one passed in 2004, and the subject of my recent paper – that would allow them to repatriate profits attributed to their foreign operations at a 5.25 percent tax rate instead of the usual 35 percent. Most of the funds returned to the U.S. will likely be paid to shareholders rather than used for investment and new hiring (as the companies lobbying for the holiday claim). But the tax break would raise billions of dollars for the government and bring cash back to the U.S., which is arguably a good thing. (It’s no secret that the Obama administration has recently made overtures to reboot its relationship with the business Read More »