Tuesday, February 03, 2009

Will Congress Make Itself a Doormat for Corporations That Avoid U.S. Taxes?

Citizens for Tax Justice (CTJ) in the U.S. has just published a new report on a scandalous lobbying proposal, and Senator Levin's office has issued a media statement on "the recent lobbying blitz by multinational corporations". As CTJ's media release says:

"In 2004, Congress did something that, it claimed, it would never do again. It allowed corporations that had shifted their profits offshore to "repatriate" those profits -- that is, bring them back into the United States -- and pay corporate income taxes on those profits at an almost nominal 5.25% rate instead of the normal 35% rate for corporate income.

In 2004, it was obvious to all that if we provided this sort of tax amnesty more than once, corporations would actually have an incentive to move their profits out of the United States. They would know to simply wait for the next amnesty, when they could bring those profits back and pay almost no taxes on them. So, lawmakers insisted that this wouldn't happen again, no matter how much corporate lobbyists begged.

Well, the corporate lobbyists are back. They argue that repeating the tax amnesty -- which would surely encourage corporations to shift even more profits into offshore tax havens -- will be an effective stimulus for the U.S. economy! When the Senate takes up its economic stimulus bill this week, some members will offer an amendment to include this second amnesty. A new report from Citizens for Tax Justice explains what exactly is meant by repatriation" and why it's exactly the wrong policy for America right now.

According to Senator Carl Levin's office:

"During the 2004 debate, advocates for the tax holiday argued that it would create U.S. jobs and increase domestic investment. The senators are warning that there is little evidence to show that the costly provision did either. In fact, disturbing evidence suggests the contrary may be true.

According to a January 2009 Congressional Research Service (CRS) analysis, of twelve top repatriating companies, ten cut jobs even before the recent economic downturn. Pfizer repatriated $37 billion, more than any other company, yet closed a number of plants beginning in 2005 and cut 9,000 jobs in 2005. Merck repatriated $15.9 billion, but announced layoffs of 7,000 workers in 2005. Hewlett-Packard repatriated $14.5 billion and laid off 14,500 workers. Other top repatriating firms that announced job cuts include Procter and Gamble, PepsiCo, Motorola, Honeywell, Ford, National Semiconductor, and Colgate Palmolive."

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. Senator Levin has initiated an investigation into the 2004 repatriation. “The corporate lobbying rush to get this tax benefit into the stimulus bill should raise the hackles of every Member of Congress concerned about taxpayers paying their fair share,” said Levin.

Read CTJ's report here, which contains plenty more data and analysis. A couple of highlights:

"Under the amnesty provision enacted as part of the so-called American Jobs Creation Act of 2004, profits were repatriated typically through a dividend made to a U.S. company from its offshore subsidiary, and the U.S. parent company then paid a tax of 5.25 percent on that dividend. About $312 billion of overseas profits were repatriated this way, but this did not have the stimulative effect that lawmakers promised.

Congress utterly failed to ensure that this select group of companies used their repatriated profits to create jobs. The statute required that the repatriated funds be used for “the reinvestment of such dividend in the United States (other than as payment for executive compensation), including as a source for the funding of worker hiring and training,
infrastructure, research and development, capital investments, or the financial stabilization of the corporation for the purposes of job retention or creation.”

A 2008 study found that there was no positive correlation between a company’s repatriated earnings and an increase in the permitted uses, but did find a positive correlation between the repatriation and increased repurchases of stock (effectively putting the money in the hands of the shareholders) which was NOT a permitted use under the bill."


Anonymous Anonymous said...

Hi, Can you post a link to the 2008 you refer to that shows the correlation between repatriation, jobs and stock buybacks?

10:16 am  

Post a Comment

<< Home