Friday, June 24, 2011

U.S. Companies Hold Roughly $1 Trillion Oversea


UPDATE: Some In Congress Mull Repatriation Tax Holiday, But Skepticism Lingers


By Kristina Peterson
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Glimmerings of bipartisan support emerged in Congress this week around a tax break for bringing back U.S. corporate profits held overseas, but many lawmakers remain skeptical that such a move would help generate new jobs.
New York Sen. Charles Schumer, a top Senate Democrat, said Thursday that his party would be willing to consider a tax repatriation holiday, provided the companies that benefit from the lower tax rate use the funds to help create jobs. Under a repatriation tax holiday, U.S. companies would be enticed to bring foreign profits back to the U.S. by taxing them at a roughly 5% tax rate, rather than the current top corporate rate of 35%.
While repatriation has gathered some recent momentum from lawmakers of both parties this month, its history is already complicating its future chances. A tax holiday on overseas profits last cleared Congress in 2004, billed as a one- time remedy. Now lawmakers are reluctant to send companies a signal that they can simply stash cash abroad and wait for the U.S. to lower its tax rates again.
"I'm not against bringing it back this time, but we're going to have to get something back for it," Sen. Orrin Hatch, (R., Utah), the top Republican on the Senate Finance Committee, said Thursday. "It's not right every five years to bring repatriated funds back at a 5% tax rate." Like many Republicans and major corporations, Hatch would prefer to see the country broadly change the way it taxes profits that U.S. companies earn overseas.
A sweeping rewrite of the tax code is likely to take time, however, and few expect it to be wrapped up before the 2012 elections. Politicians of both parties could warm to a repatriation tax break as a short-term economic boost.
Treasury Secretary Timothy Geithner has also said that the administration thinks repatriation could form part of an overhaul of the corporate code, but has said he would oppose it as a stand-alone measure.
"Repatriation is the only big idea that's out there," said tax lobbyist Ken Kies, the managing director of Federal Policy Group. "It's better to have our money here than in France."
U.S. companies hold roughly $1 trillion overseas, according to an estimate from Rep. Kevin Brady (R., Texas), who introduced legislation in May to temporarily lower the tax rate for repatriated profits to 5.25%.
"I am convinced it was one of the strongest economic arrows in the 2004 tax package and I'm convinced it will produce even better results in this economic time," Brady said Thursday, noting that he sensed renewed momentum for the bill.
Major companies including Google Inc. (GOOG), Apple Inc. (AAPL), Pfizer Inc. (PFE) and Cisco Systems (CSCO) have already signaled their support for the bill.
But some analysts have questioned whether bringing back profits would actually spur job growth. The 2004 law prompted 843 corporations to bring back $312 billion to the United States, according to the Internal Revenue Service. But a 2009 study from the nonpartisan National Bureau Of Economic Research found that for every dollar companies brought back to the U.S., they invested less than one cent more domestically. Businesses that repatriated profits primarily used the funds to reward shareholders, largely through dividends and stock buybacks.
Despite legal restrictions around how companies could use repatriated cash, businesses were able to use those funds to pay for already-budgeted expenses, freeing up money for other purposes, noted an analysis posted Thursday from the Center on Budget and Policy Priorities, a liberal Washington think tank.
"Policymakers should be extremely skeptical of the claim that, despite the evidence that the 2004 tax holiday failed to boost investment or jobs significantly, the results would somehow be different the second time around," Chuck Marr and Brian Highsmith wrote in the Center's report.
Some senators who supported the 2004 repatriation have yet to decide if they would do so again.
"I would want to make sure that there's an economic benefit," Sen. Chuck Grassley (R., Iowa), a former chairman and current member of the Senate Finance Committee, said Thursday. In the earlier effort, companies seemed to need the funds to invest, but "now we've got corporations with treasuries that are overflowing," he said. "If they aren't spending it now, would they spend it any faster if they brought it back under tax benefits?"
The cost of repatriation could pose additional challenges at a time when the government grapples with the federal budget and faces an Aug. 2 deadline to increase its $14.29 trillion debt-ceiling or risk defaulting on its obligations.
The Joint Committee for Taxation, a nonpartisan Congressional office, estimated in April that taxing repatriated funds at the proposed 5.25% rate would bring in $25.5 billion in additional tax receipts over its first three fiscal years, but would ultimately cost $78.7 billion in lost revenues over a decade.

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