Bring Our Bucks Back

March 25, 2011

Portfolio.com

Kent Hoover

Corporate America is pushing for a $1 trillion economic stimulus plan that wouldn’t require Congress to appropriate any additional money.

Instead, all it wants Congress to do is to allow multinational corporations to bring back $1 trillion in earnings they have parked overseas to the U.S., without having to pay the full corporate tax of 35 percent on this money. That rate is the highest in the developed world.

The corporations behind this repatriation tax holiday proposal include Apple, Google, and Microsoft, supported by business organizations such as TechNet and the U.S. Chamber of Commerce. They call themselves the WIN America Coalition, with WIN standing for Working to Invest Now in America.

“Our broken tax system actually penalizes U.S. businesses that want to bring their global earnings to America,” the coalition’s mission statement says. “We are left with a choice: Provide businesses with incentives to invest their global earnings here at home, or preserve the status quo and keep the money overseas.”

Bringing this money back to the U.S. is “one of the few options available that will help ensure our recovery is enduring and that it spreads to Main Street,” the coalition contends.

This idea has been tried before, in 2005, when U.S. companies were taxed at only a 5.25 percent rate on the money they brought back from other countries. (These corporations already paid taxes on this money in the countries where these profits were earned—the way multinationals are taxed in the rest of the world.)

At least $320 billion in corporate profits was repatriated to the U.S. as a result of this temporary tax break, according to Grover Norquist, president of Americans for Tax Reform, in a Daily Caller piece that’s been reposted on the WIN America Coalition’s website. Bringing back this money generated $17 billion in additional corporate tax revenue for the federal government, and U.S. businesses used the rest of the money “to fund pension plans, raise wages, create jobs, and invest in new plants and equipment,” Norquist writes.

That’s not how the Obama administration sees it, however. In a blog post published Wednesday, Michael Mundaca, assistant Treasury secretary for tax policy, said “there is no evidence” that the 2005 repatriation tax policy “increased U.S. investment or jobs.”

The Congressional Research Service found that most of the biggest recipients of the tax break “actually cut jobs in 2005-06—despite overall economy-wide job growth in those years—and many used the repatriated funds simply to repurchase stock or pay dividends,” Mundaca wrote. “Today, when U.S. corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation.”

Plus, more than half of the tax benefits from the 2005 repatriation holiday went to only 15 companies, he noted.

“To pay for giving this large tax cut once again to a small group of U.S. companies without increasing the deficit, we would have to raise taxes on other U.S. businesses,” Mundaca contended.

The tax treatment of overseas earnings should be considered in the context of overall corporate tax reform, he wrote, but “letting our eye off the ball of comprehensive tax reform in favor of a temporary measure of this kind would be a mistake.”

Mundaca’s blog prompted a rebuttal from David Chavern, executive vice president of the U.S. Chamber of Commerce. Mundaca’s argument that a repatriation tax holiday would get in the way of overall corporate tax reform is “a false choice,” Chavern wrote.

“No new tax reform package will deal with the billions of dollars that are already stranded overseas,” he wrote. “Both tax reform (for the future) and repatriation (now) are needed to address fundamental flaws in our corporate tax system.

“Our current tax code provides every incentive for U.S. companies to never, ever repatriate monies earned overseas back to the United States. Why bring it back just to send a large chunk of it to the government? No other major economy taxes foreign earnings in this way. The better choice for any rational company would be to just leave it overseas and invest it there—creating jobs in other countries that should be created here,” Chavern writes.

Despite the corporate firepower behind the repatriation tax holiday, the odds are against it. House Majority Leader Eric Cantor, Republican of Virginia, likes the idea, but Bloomberg reports that the leaders of the congressional committees that handle tax legislation think it should be considered only in the context of overall corporate tax reform. And no one expects corporate tax reform any time soon.

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