Two senators want to stop multinational companies from lobbying to include a tax break for offshore earnings in the economic stimulus package.
Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, and Byron Dorgan, D-N.D., have expressed concern over the recent lobbying blitz by the companies. The companies first received a tax break in 2004 that provided them with an 85 percent discount on the profits they made overseas and returned to the U.S.
Companies such as Dell, Eli Lilly, Hewlett-Packard and Oracle, along with the U.S. Chamber of Commerce, are lobbying for a repeat of what was originally billed as a one-time-only tax break. The American Jobs Creation Act of 2004 provided a one-year repatriation tax holiday that reduced the 35 percent federal tax rate that U.S. companies normally owe on foreign earnings to just 5.25 percent.
“Proponents claim that repatriation tax holidays encourage businesses to bring foreign earnings back into the United States,” said Levin (pictured) in a statement. “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.”
He noted that in 2005, over $300 billion in offshore funds were brought back and were subject to the lower tax rate, depriving the Treasury of billions of dollars in 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,” Levin added.
“There’s another phrase for repatriation – it’s called rewarding the outsourcing of jobs,” said Dorgan. “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.”
During the 2004 debate, advocates for the tax holiday argued that it would create U.S. jobs and increase domestic investment. The senators say there is little evidence to show that the costly provision accomplished those goals.
According to an analysis by the Congressional Research Service last month, 10 of the top 12 repatriating companies cut jobs even before the recent economic downturn. The senators recommended reviewing the impact on U.S jobs and tax revenues before Congress includes the repatriation in the stimulus package.
“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, whose committee has opened an investigation. “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.”
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