Ford Takes a Tax Holiday for 'Jobs Creation'
It's almost enough to make you laugh -- bitterly, of course. Here was Ford Motor Co. announcing yesterday that it had cut 10,000 jobs last year and that it will cut up to 30,000 more. But shedding jobs at muscle-car acceleration rates didn't stop Ford from pocketing hundreds of millions of dollars courtesy of the American Jobs Creation Act.
No, I'm not making this up. Right there, on page 2 of one of its news releases yesterday, Ford said that "repatriation of foreign earnings pursuant to the American Jobs Creation Act of 2004 resulted in a permanent tax savings of about $250 million."
Hello? How can you simultaneously cut jobs and benefit from the American Jobs Creation Act? Welcome to the wonderful world of Washington nomenclature.
Ford, understandably, declined to expand on its news release. But my calculations indicate that Ford last year brought into the United States about $850 million of profit that it had earned overseas but did not have to share with the Internal Revenue Service.
Let me hasten to say that I've got no problem with Ford bringing this money home. Ford is battling for survival, and every $850 million helps. It would have been remiss not to have taken advantage of the idiotic legislation that Congress adopted and that President Bush signed despite objections from his Treasury Department and Council of Economic Advisers.
My problem is with the legislation, and especially with its misleading name. Companies don't add jobs based on one-time chances to repatriate money from overseas.
Congress should thank its lucky stars that federal truth-in-labeling laws don't apply to names it accords to legislation, because almost every dispassionate analyst agrees that the American Jobs Creation Act didn't create jobs in the United States. The only possible exception: short-term paper-shuffling positions added to allow companies to produce documents that let them qualify for the tax break without doing anything differently than they'd have otherwise done it.
In case you've forgotten, this law gave U.S. companies a one-time chance in 2005 to repatriate profits made overseas and pay only 5.25 percent tax on them rather than the standard 35 percent.
It was a tax holiday, and the biggest celebrators were pharmaceutical and tech companies that had traditionally kept tons of profits overseas. But Ford saw its chance and took it.
Despite dozens of pages of regulations issued by the Treasury Department to restrict use of the money to uses approved by Congress, the whole thing was unenforceable. Money, you see, is what economists call "fungible." Any dollar is like any other dollar. Ford, for instance, could use its $850 million of repatriated profits for a permitted use such as buying equipment, freeing up $850 million for other, non-approved uses.
American Enterprise Institute fellow Phillip L. Swagel, formerly chief of staff of Bush's Council of Economic Advisers, told my Post colleague Jonathan Weisman last August that "you might as well have taken a helicopter over 90210 [a Beverly Hills Zip code] and pushed the money out the door." That's a memorable quote -- and a dead-accurate observation.
I suspect that when the Treasury finishes analyzing its corporate income-tax receipts for 2005, it will discover that a significant part of last year's surge in collections stems from this one-time tax break. Companies took advantage of it because they prefer paying a small tax today to possibly paying a higher tax tomorrow. It's the same kind of thing car companies do when they make car-loan terms longer. They add sales today but at the expense of sales tomorrow.
I hope that Ford returns to prosperity and begins adding U.S. jobs again, the way I hope that General Motors and Chrysler do. But the Ford example shows how nonsensical the name American Jobs Creation Act truly is. The bottom line: When you see a piece of legislation carrying a name that sounds too good to be true, it probably isn't true.
Allan Sloan is Newsweek's Wall Street editor. His e-mail email@example.com.