It was called the “Homeland Investment Act,” and was sold to Congress as a way to spur investment in America, building plants, increasing research and development and creating jobs. It gave international companies a large one-time tax break on overseas profits, but only if the money was used for specified investments in the United States.
The law specifically said the money could not be used to raise dividends or to repurchase shares.
And who owns our stock? The 2007 Survey of Consumer Finances shows us how concentrated stock ownership is:
- 17.9% of households owned STOCKS outright -- that is, outside of mutual funds and retirement accounts.
- Individual stocks represent 7.1% of aggregate household wealth.
- The bottom 50% of us owned 0.6% of the STOCKS
- The next 40% of us owned 9.0% of the STOCKS
- The top 10% of us owned 90.4% of the STOCKS
- The top 1% of us owned 51.9% of the STOCKS
- The next 4% of us owned 30.5% of the STOCKS -- so the top 5% owned 82.4% of the value
- The second 5% of us owned 8.0% of the STOCKS
What about Mutual Funds? (This might include holdings of bonds as well as equities.)
- 11.4% of households held non-money market mutual funds -- NMMF -- in 2007
- NMMF represented 6.3% of aggregate household wealth -- a bit less than STOCKS
- The bottom 50% of us held 0.4% of NMMF
- The next 40% of us held 11.6% of NMMF
- The top 10% owned 88.0% of NMMF
- The top 1% held 46.7% of the NMMF
- The next 4% owned 30.9% of the NMMF -- so the top 5% owned 77.6% of the value
- The second 5% of us owned 10.3% of the value
And how about Retirement Accounts (liquid assets, as opposed to defined benefit pension plans) -- RETQLIQ in the language of the SCF? (This might include holdings of bonds as well as equities.)
- 52.6% of household helpd RETQLIQ
- RETQLIQ represented 13.8% of aggregate household wealth -- roughly equal to the sum of STOCKS and NMMF
- The bottom 50% of us held 3.8% of RETQLIQ -- quite a bit more than their share of STOCKS or NMMF
- The next 40% of us held 36.7% of RETQLIQ
- The top 10% of us held 59.5% of RETQLIQ
- The top 1% of us held 14.5% of RETQLIQ
- The next 4% of us held 28.0% of RETQLIQ -- not as large as their share of either STOCKS or NMMF -- so the top 5% owned 42.5% of these tax-advantaged accounts. For the "next 4" group, RETQLIQ was roughly twice their holdings of STOCKS and NMMF.
- The second 5% owned 16.9% of RETQLIQ
Combining those three groups of assets -- STOCKS, NMMF and RETQLIQ -- we find"
- these assets represented 27.2% of aggregate household wealth
- the bottom 50% of us held 2.2% of these assets
- the next 40% of us held 23.6% of these assets
- the top 10% of us held 74.2% of these assets
- the top 1% held 31.8% of these assets
- the next 4% held 29.3% of these assets, so the top 5% shared 61.1% of the value
- the second 5% held 13.1% of these assets.
But there is one other relevant asset category: Business Equity --- SCF calls it BUS -- the equity in privately held businesses. This is what some might style "small business," but it clearly includes some very large businesses.
- 12.0% of households have BUS (far fewer than the percentage which report self-employment)
- BUS represented 23.1% of aggregate household wealth in 2007
- the bottom 50% of us held 0.4% of business equity -- approximately equal to their share of STOCKS and NMMF
- the next 40% of us held 6.0% of BUS -- far below that group's share of STOCKS, NMMF or RETQLIQ
- the top 10% of us held 93.7% of BUS
- the top 1% of us held 62.7% of BUS, and these holdings are about 66% more than their holdings of STOCKS, NMMF and RETQLIQ combined.
- the next 4% of us held 25.5% of BUS, so the top 5% held 88.1% of BUS
- the next 5% of us held 5.5% of BUS.
Combining these four classes of assets -- STOCKS, NMMF, RETQLIQ and BUS, we find this distribution:
- these assets represent 50.3% of household wealth.
- the bottom 50% of us held 1.3% of these assets
- the next 40% of us held 15.5% of these assets
- the top 10% of us held 83.1% of these assets
- the top 1% of us held 45.9% of these assets
- the next 4% of us held 27.6% of these assets, so that 73.5% of these assets are in the hands of 5% of us
- the second 5% of us held 9.6% of these assets
So when this study says that 92% of the benefit of this "repatriation" went to the shareholders, remember how concentrated that ownership is. Those of us who only have our own labor got very little:
“Repatriations did not lead to an increase in domestic investment, employment or R.& D., even for the firms that lobbied for the tax holiday stating these intentions,” concluded the study by three economists, including a former official of the Bush administration who took part in the discussions leading to enactment of the plan in 2004. ...
From the B.E.A. data, the researchers were able to calculate that $300 billion in overseas profit was repatriated by American companies in 2005, when they had to pay a tax rate of just 5.25 percent, rather than the normal corporate tax rate of 35 percent. The amount was five times the normal amount of repatriations.
United States tax law allows American companies to defer paying taxes on foreign profits so long as the profits are invested outside the United States. That is a big reason most major companies pay taxes that amount to far less than the 35 percent corporate tax rate would indicate.
One other set of statistics from the SCF: Comparing the 2004 and 2007 data, of the aggregate increase in the four categories combined,
- the bottom 50% of us received 1.5%
- the next 40% received 2.5%
- the top 10% received 96.0%
- the top 1% received 56.5% of the aggregate increasse
- the next 4% received 35.3%, so the top 5% received 91.8% of the 2004 to 2007 growth
- the second 5% received just 4.1% of the aggregate increase.
- looked at another way, the bottom 95% saw an increase of 20.2% and the top 5% saw an increase of 35.3%: the bottom 95% went from holding 31.3% of this asset to holding 26.5%; the top 5% went from holding 66.9% in 2004 to holding 73.5% in 2007