(Bloomberg) Senators Rand Paul and Barbara Boxer are proposing a tax incentive for U.S. companies to bring home their offshore cash stockpiles and pledging to use that revenue to fund highways.
The proposal by Paul, a Kentucky Republican, and Boxer, a California Democrat, would let companies repatriate money parked overseas at a 6.5 percent tax rate.
Under current law, U.S. companies must pay the full tax rate of 35 percent when they bring home profits from overseas, after receiving credits for foreign taxes they have paid.
“This would mean no new taxes, but more revenue, and it is a solution that should win support from both political parties,” Paul said in a statement Thursday in Washington.
It’s not clear that the plan would actually raise revenue. The nonpartisan Joint Committee on Taxation, the official scorekeeper for tax bills, said last year that a similar proposal would cost the government $95.8 billion over a decade.
That’s because companies would interpret a repeat of a tax holiday enacted in 2004 as a sign that they should shift even more profits outside the U.S. in anticipation of another holiday.
U.S. companies have stockpiled about $2 trillion outside the country, in part because that’s where they’re earning profits and in part because they have used accounting maneuvers to book profits in low-tax jurisdictions.
Apple and Google
Companies including Apple Inc. and Google Inc., both based in Boxer’s home state, lobbied Congress in 2011 for a repatriation tax holiday. They didn’t succeed.
President Barack Obama has proposed using revenue from taxing offshore profits to fund infrastructure. His plan is different from the Boxer-Paul proposal in one important respect—it would be tied to permanent changes to international tax law intended to make it more difficult for companies to shift future profits outside the U.S.
The Boxer-Paul proposal includes language to limit companies from using repatriated profits to boost executive pay or buy back stock. Companies that invert—or move their tax address outside the U.S. —within 10 years would have to repay the tax break with interest.
Companies would have up to five years to bring home the profits.
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