Tax Law and Afghanistan

Grind for January 7th
“For last year’s words belong to last year’s language and next year’s words await another voice.”
– TS Eliot

Told You So

The Headline

GOP tax overhaul brings $1 trillion back to the US

The Grind

According to Commerce Department data published last Thursday, American corporations have brought more than $1 trillion in overseas profits back into the country since Congress passed the Tax Cuts and Jobs Act (TCJA) in 2017.

Before the policy change, American businesses with foreign subsidiaries were forced to pay a whopping 35% tax when bringing profits back into the country (thus incentivizing them to hold cash overseas).

The TCJA changed that rate to 21% and offered businesses a one-time rate of 15.5% for cash and 8% for other assets.

The Details

When the tax law was approved, American businesses were keeping an estimated $2.5 trillion in foreign banks. Between 40% and 66% of that money has been returned to the US.

In the meantime, the average after-tax income has increased by nearly $6,000.

The repatriation data outlined above was included in the Commerce Department’s quarterly report on the current-account deficit, which shrank from $125.2 billion to $124.1 billion between July and September.

While the total amount of repatriated funds falls far short of the $4 trillion Trump had promised, the law has succeeded in bringing money back to the US. This means lower interest rates for loans and more money in the US capital cycle.

Bad Move

The Headline

Lawsuit accuses US firms of paying Taliban for protection

The Grind

A lawsuit filed on Friday accuses American and international contractors operating in Afghanistan of paying protection money to the Taliban that was then used in the fight against US soldiers.

The lawsuit was filed by family members of 143 American soldiers and contractors who were killed or wounded in Afghanistan between 2009 and 2017.

The Details

Among the plaintiffs is August Cabrera, whose husband was killed by a car bomb in 2011 while working in Afghanistan as a therapist for soldiers. Ms. Cabrera says she hopes the lawsuit will “change the way business is done in war zones.”

Companies named in the lawsuit are accused of paying the Taliban millions of dollars at the height of the war, when more than 100,000 US troops were sent to Afghanistan to fight the Taliban.

The accusation is in line with multiple congressional investigators, which cited protection money as a major source of funding for warlords, corrupt officials, and likely the Taliban.

For the companies, appeasing the Taliban allowed them to avoid excessive security costs. But it also gave the Taliban more resources with which to attack US troops.

Citing confidential sources, journalists, congressional reports, and government watchdogs, the lawsuit claims that up to 40% of the funds for major construction projects in Afghanistan went to insurgents.

“The defendants are large corporations that had lucrative businesses in Afghanistan,” says lawyer Joshua Branson. “Those protection payments, as alleged, redirected attacks away from the defendants’ own interests while financing a terrorist insurgency that killed and injured thousands of Americans, including our clients.”

Companies named in the suit include: DAI Global LLC, Louis Berger Group, Black & Veatch Special Projects Corp., Center Group, LLC, Janus Global Operations LLC, G4S PLC, and MTN Group.

In the meantime, assessments suggest the Taliban is more powerful now than at any time since 2001. US diplomats are attempting to negotiate the withdrawal of US troops in exchange for promises that Afghanistan will no longer be used as a sanctuary for terrorists.

Did you know… St. Paul, Minnesota was originally called ‘Pigs Eye’.