Looks like a split is developing in the Senate Democratic ranks over the contentious question of using the stimulus bill to give “repatriation” tax benefits to corporations.
The idea is a simple one, though likely to alarm progressives: multinational companies with U.S. headquarters would be given a one-time discounted tax rate of 5.25% — down from a normal rate of 35% — if they declare their offshore earnings in this country.
Sens. Barbara Boxer (D-CA) and John Ensign (R-NV) are amassing support to add repatriation to the stimulus bill, and they’ve got at least a partial vote of confidence from the Senate Democratic No. 3 leader, Chuck Schumer (NY). But two fellow senior Dems, Carl Levin (MI) and Byron Dorgan (ND), are decrying what they call a business “lobbying blitz” to secure repatriation benefits.Levin and Dorgan note that repatriation was attempted with questionable success in 2004, as part of George W. Bush’s third tax-cut bill in four years. Democrats criticized the tax break at that time as unfairly skewed towards companies that outsource jobs.
“The facts simply don’t support the claim that giving a tax holiday to companies with offshore profits will benefit the country and boost our economy,” Dorgan said in a statement released with Levin. But can the duo convince other Democrats to beat back the Boxer-Ensign proposal this week? Here’s a look at their complete argument against repatriation:
Impact on U.S. Jobs and Domestic Investment. Proponents assert that repatriation will result in an increase in U.S. jobs and domestic investment. Yet, according to [a] January 2009 CRS analysis, “While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment.” Instead, as the CRS analysis shows, the top repatriating corporations closed down facilities and made massive job cuts. Another study found that many corporations who benefited from this tax break used the money to repurchase their own stock, which had no impact on job creation. Evidence is needed to show how a new round of repatriated funds would produce new jobs or domestic investment, since the last round failed to do so.
Impact on U.S. Tax Revenues. Proponents assert that the $312 billion repatriated in 2005 represented funds that would not have otherwise been brought back into the United States and so produced new tax revenue. But, a Joint Committee on Taxation staff case study concluded that “the data belie this assertion.” In addition, the score for the proposed repatriation provision is expected to project that it will cost the government billions of dollars in lost tax revenues.
Benefits Favor Corporations Engaged in Outsourcing. Data suggests that the 2004 repatriation tax holiday may have benefited only a narrow group of corporations that sent jobs, facilities, or funds offshore. In 2005, for example, five companies (Pfizer, Merck, Hewlett-Packard, Johnson & Johnson and IBM) brought back 28% of total $312 billion repatriated. The top 15 repatriating companies accounted for over half of that total. This data indicates that reduced-rate repatriations may unfairly benefit a small group of large corporations that conduct business offshore, while imposing a competitive disadvantage on companies that keep jobs, facilities, and earnings within the United States.
Supporting Offshore Tax Havens. Most of the funds repatriated under the 2005 holiday came from “tax haven” or low tax jurisdictions, including Bermuda, the Cayman Islands, Luxembourg, and the Netherlands. Research is needed to better understand the reasons why these jurisdictions were favored, and to determine whether repatriation tax holidays encourage U.S. companies to do business in and financially support offshore tax havens with secrecy laws and practices that impede U.S. tax enforcement.
Encouraging Offshore Profits. The January 2009 CRS analysis determined that multinational corporations are attributing their profits to tax havens at a far greater rate than before the 2004 repatriation provision [became law]. Research is needed to determine whether companies are reporting greater offshore profits due to expanded offshore operations or instead due to greater reliance on tax avoidance schemes such as aggressive transfer pricing, and whether repatriation tax holidays encourage U.S. companies to engage in more offshore business, more offshore tax abuses, or both.