THE SYSTEM ISN'T WORKING VERY WELL

US multinational corporations have an estimated $1.95 Trillion in cash sitting abroad, safe from the IRS and that does nothing good for the US economy:

Cash Abroad Rises $206 Billion as Apple to IBM Avoid Tax
By Richard Rubin Mar 12, 2014 11:47 AM MT

The largest U.S.-based companies added $206 billion to their stockpiles of offshore profits last year, parking earnings in low-tax countries until Congress gives them a reason not to.

The multinational companies have accumulated $1.95 trillion outside the U.S., up 11.8 percent from a year earlier, according to securities filings from 307 corporations reviewed by Bloomberg News.

The increase in profits held outside the U.S. has been particularly large and steady at technology companies, many of which have moved patents and other intellectual property to low-tax locales.

U.S. multinational companies reported earning 43 percent of their 2008 overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland, more than five times the share of workers and investment they have in those jurisdictions, according to a 2013 Congressional Research Service report.

In 1909, Congress enacted penalties on cash hoarding but they were changed during the Age of Reagan:

The great corporate cash-hoarding crisis
by David Cay Johnston
March 14, 2014
AL-JAZEERA AMERICA

Congress understood this in 1909, when the corporate income tax was adopted. Worried that companies would become bloated with cash, slowing the economy, Congress put a stiff 15 percent penalty tax on excessive pools of cash. Thousands of small business owners who have hoarded cash have had to pay that penalty over and above their taxes.

But in 1986 Congress changed the rules, retaining the penalty tax on domestic cash hoarding but allowing multinationals to hold unlimited amounts of cash so long as they sent the money offshore. This act incentivized the enormous world of offshore tax avoidance we see today, as chronicled in my book “Perfectly Legal” and other books such as Nicholas Shaxson’s excellent “Treasure Islands.”