After I wrote my post earlier today about President Obama's new protectioniststance on American jobs, I made a call to a friend of mine at a large American corporation with lots of overseas operations.
He generally likes Obama, although he thinks the president has been too resistant to calls for a repatriation tax holiday. You know the deal: American companies such as Apple have enormous mountains of cash abroad because they do not want to pay the 35 percent corporate tax. That keeps them from investing the money in expansion within America or paying it out in dividends to shareholders. Instead, the cash either sits idle or gets used to build facilities and expand outside the U.S. Some in corporate America have been advocating a temporary "tax holiday" to allow companies to repatriate all that money at a significantly lower tax rate.
The tax holiday advocates say it will lead to more job creation.
My friend's read of the president's State of the Union address was that Obama might be proposing a "command and control" version of tax repatriation.
"Basically, he'll let you repatriate if you directly use the money to create jobs. It's telling corporate America what it can do with its cash," he said.
He thinks this would be bad for shareholders, since they would do better if the money could be paid out in dividends. He does think, however, that it could create some jobs at the margin.
"Some jobs aren't worth creating because the marginal cost of a new hire exceeds the expected return. The tax cut reduces the marginal cost, which means some jobs will get created," he said.
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