The Best Investment in Today's Economy
Investing isn't easy these days. Bank savings accounts and money market funds earn next to nothing. Bond yields are at historic lows. The stock market is at a recent high, but full of volatility. And alternative investments like real estate and private equity can be illiquid or bring with them other drawbacks.
If you're a corporate treasurer, you might consider investing in a Washington lobbyist. Back in 2009, three professors conducted a study revealing that companies who helped lobby for one particular tax break earned a staggering 22,000% return on every dollar they invested in lobbying! (For those of you who didn't major in accounting, that's $220 dollars coming back on every dollar going in.)
Back in 2004, when Congress was considering the American Jobs Creation Act, an ad-hoc group calling itself the Homeland Investment Coalition lobbied for it to include a "tax repatriation holiday." Multinational corporations often structure their operations to earn profits overseas, then leave those profits overseas to avoid U.S. tax. The repatriation holiday cut the regular tax rate on those profits from 35% to just 5.25%, which encouraged them to bring those profits back home. The stated goal, naturally, was for those companies to reinvest those profits and create new jobs.
More than 800 companies ended up celebrating the "holiday." Together, they saved an estimated $100 billion in tax, which certainly sounds worth celebrating! Winners included pharmaceutical and technology companies (Pfizer, Johnson & Johnson, and Merck), technology companies (Hewlett Packard and IBM), and financial services (Citigroup, J.P. Morgan Chase, Morgan Stanley, and Merrill Lynch). Not all of those companies "invested" in lobbying for the law, but even those that did, won big. For example drugmaker Eli Lilly reported spending $8.5 million to lobby for the tax break in 2003 and 2004 — and saving more than $2 billion in tax. Not a bad "ROI"! (The jury is still out on whether the law actually created any jobs — many of its beneficiaries actually cut jobs after the tax break, and most of the money went to stock buybacks or dividends.)
Of course, not every lobbying "investment" pays off. Sometimes lobbyists strike out. And successful lobbying is harder in today's hyper-partisan gridlocked Congress. But shrewd lobbying still pays off. The New York Times reported earlier this week that lobbyists representing Amgen, the world's largest biotechnology firm, completed a "Hail Mary" pass by tucking language into the recent "fiscal cliff" bill. The provision delays a set of Medicare price restraints on a category of drugs that that includes Amgen's own Sensipar. This legislative goodie is estimated to benefit Amgen and other drugmakers by $500 million over the next two years. And it comes just two weeks after Amgen pled guilty to marketing another one of its drugs illegally, agreeing to pay a record $762 million in fines and penalties! And while the new law isn't a tax provision, p er se, it still illustrates the power of lobbying.
Individual taxpayers like you and me can't lobby for millions in tax breaks. But we can take advantage of the hundreds of tax breaks that somebody else has already created. The key, of course, is research to find those breaks and planning to take advantage of them. That's why we focus so much effort on proactive planning.
Consider this as the 2013 tax season approaches. Any competent tax preparer can put the "right" numbers in the "right" boxes on the "right" forms. But then, most of them pretty much call it a day. They really just help you record history. Our job is much broader and much more valuable. So call us when you're ready to start writing your own history! And remember, we're here for your family, friends, and colleagues, too.
Tom Sawyer CPA/PFS, CTC
Sawyer and Latimer, PA