A high-ranking Treasury Department official has come out against calls by some multinational corporations for a tax holiday on earnings repatriated from abroad.
A number of corporations, especially in the high-tech industry, have called for a tax holiday on earnings that have been charged to foreign subsidiaries in low-tax countries. They argue that if corporations were allowed to repatriate the earnings of their foreign subsidiaries without being taxed up to 35 percent on the money, they could bring up to $1 trillion back to the U.S. and use the money to create more jobs.
A group called WinAmerica, backed by Apple, Cisco, Google, Microsoft, Pfizer, Oracle, Qualcomm, the U.S. Chamber of Commerce, and others, has been pushing a campaign for a temporary repatriation period, as a first step toward corporate tax reform.
Assistant Treasury Secretary for Tax Policy Michael Mundaca wrote in a blog post on the Treasury Department’s Web site last Wednesday that the idea was tried several years ago, but did little to create jobs.
“In 2004, when the U.S. enacted a repatriation tax holiday, the goal was to encourage U.S. multinationals to pay bigger cash dividends from their overseas subsidiaries and use the cash to make investments in the United States,” he wrote. “Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions.”
Mundaca noted that before enactment of the 2004 repatriation tax holiday, the Joint Committee on Taxation estimated that the tax holiday would cost billions of dollars. According to outside estimates, just five firms got over one-quarter of the tax benefits of the repatriation holiday, and just 15 firms got more than 50 percent of the benefits.
In assessing the 2004 tax holiday, he added, the nonpartisan Congressional Research Service found that most of the largest beneficiaries of the holiday actually cut jobs in 2005 and 2006, despite overall job growth in those years throughout the economy, and many of the beneficiaries used the repatriated funds only to repurchase their own stock or pay dividends to their shareholders.
The cost of a new repatriation tax holiday could cost up to $30 billion. “To pay for giving this large tax cut once again to a small group of U.S. companies without increasing the deficit, we would have to raise taxes on other U.S. businesses,” Mundaca noted.
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