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
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.)
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 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, per se, it
still illustrates the power of lobbying.
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.
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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