Levin, Dorgan Question Repatriation Lobbying Effort
Monday, February 2, 2009
WASHINGTON -- Today two senators expressed concern over the recent lobbying blitz by multinational corporations to allow companies with offshore funds to move their money back to the United States at a deeply discounted tax rate. The lobbying effort is advocating a repeat of what was specified in 2004 as a one-time only tax break for corporations with funds offshore, when the American Jobs Creation Act of 2004 provided a one-year repatriation tax holiday that reduced the 35% federal tax rate that U.S. companies normally owe on their foreign earnings to just 5.25%.
“Proponents claim that repatriation tax holidays encourage businesses to bring foreign earnings back into the United States,” said Sen. Carl Levin, D-Mich. “But it may do the exact opposite by encouraging companies to move operations offshore or shift profits to tax havens in anticipation of a future tax holiday and by alleviating any worry that the funds might get stuck offshore. In 2005, over $300 billion in offshore funds were brought back and were subject to a 5.25% tax rate instead of the normal 35% rate, which means Uncle Sam missed out on billions in needed tax revenues. Such tax holidays not only reduce U.S. tax revenue in the long run, but create new incentives for U.S. multinationals to send more jobs, funds and facilities offshore.”
“There’s another phrase for repatriation – it’s called rewarding the outsourcing of jobs. If we allow U.S. corporations to once again send the money they earn abroad back to the U.S. at a discounted tax rate, it will only lead to more companies moving their profits offshore,” said Sen. Byron Dorgan, D-ND. “The goal is to strengthen our economy with tax policies and investments that will create jobs here. That won’t happen with a tax policy that rewards the outsourcing of U.S. jobs.”
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, [PDF] 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 senators recommended reviewing a number of facts before Congress authorizes another repatriation of offshore funds. They include the following.
- 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 the 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. 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.
As Chairman of the U.S. Senate Permanent Subcommittee on Investigations, 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. “I don’t think Congress should repeat the 2004 repatriation until we’ve had a chance to take a closer look at what really happened the last time around.”
“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,” said Dorgan.