The House appears to be interested in reviving the idea of a repatriation holiday for multinationals with more than $1 trillion socked away offshore. They've put forward the "Freedom to Invest Act of 2011" (H.R. 1834), providing for a 5.25% tax rate on repatriated earnings of multinational corporations.
If you will recall, the 2004 "Jobs Act" bill provided for a repatriation holiday for multinationals. It was to be a "one time only" "never to be repeated" provision that would let the bad companies who had not been repatriating regularly bring home the dollars (and then behave better thereafter). The purported rationale for the provision (never really believed by anybody) was that repatriation at a very low tax rate would mean lots of money would come home, the money would be used by companies to invest in America, and there would be a springtime of jobs creation here at home as a result.
Instead, the program was a bust--a mere giveaway (again) for multinationals and their wealthy owners and managers. Companies brought home money, paid almost not tax on it (a statutory rate of 5.25% instead of the statutory 35%), and proceeded to lay off thousands of US workers. Most of the money was apparently used to buy back shares. A boon for shareholders (and managers who own lots of shares), but not for workers. Shareholders, of course, were probably much more likely to take the money and buy shares of foreign companies in the secondary market than they were to make a genuine invest in an entrepreneurial activity here in the states.
And most of us predicted that having once done such a holiday, there would be pressure from MNEs to repeat it, no matter how disastrous an impact it had on tax revenues and no matter how worthless it was at creating jobs, its only purported rationale. As a result, companies would continue to be rewarded for holding monies offshore awaiting another repatriation holiday, and the good companiesd that regularly repatriate would think twice before doing so again. The repatriation holiday, in other words, is the worst of incentives and has the effect of encouraging companies to hold more money offshore while awaiting another tax-free (or low-tax) bonanza.
Now the House wants to revive that bad idea. Companies have been lobbying, and lately what companies lobby for they tend to get. That's corporatism at its worst.
The House has at least added a provision to get at the job cuts. A company would pay a fine of $25,000 for each job cut during the two years following the low-tax repatriation. But come on, folks, isn't it clear that what will happen is that they'll cut before repatriating or wait two years and , bingo, right then there'll be a big reshuffling with offshoring of jobs? And even if it sort of worked in preventing companies from firing workers en masse right after repatriating, that doesn't really mean that the repatriation is a positive. Note that there is nothing that requires a company to prove that it used the repatriated funds to create jobs in the US! Or not to create more jobs abroad instead of in the US--i.e., the fine on jobs lost doesn't at all address the real problem that companies will intentionally use their funds offshore to create more new jobs there, resulting in no lost jobs here but no new jobs here either! The penalty for lost jobs within 2 years just provides a nice cushion of transition period to companies that are moving more of their jobs offshore. They can use the two years to gear up offshore, and then fire away at home.
And this program ain't cheap. At a time when the Republicans are hollering deficit angst, they are intent on giving away the store to the corporations. This repatriation holiday is estimated to cost about $79 billion over ten years--the lost taxes that should have been paid on the repatriated cash. And, as noted, you can bet that there will continue to be retention of profits offshore as companies gear up for "regular" repatriation holidays at almost zero tax. No company will be foolish enough to regularly repatriate without a holiday, once Congress bows to the pressure this time. This is just one more knife-wound in the corporate tax and the shift of taxation to little guys that has been going on since Reagan's presidency will continue.
Thank goodness for Rep. Doggett, who noted in his release on this matter that "to Republicans, deficits only matter when asking seniors and students to sacrifice." As Doggett's release notes:
Money is fungible and efforts to tie repatriated funds to new investment and hiring failed. The evidence shows that the corporate tax holiday was mainly used for stock repurchases and dividends—uses expressly prohibited by the legislation.
After a second repatriation tax break, firms may reasonably anticipate that this repatriation tax break will happen again, encouraging them to shift even more profits out of the U.S. to avoid paying any U.S. taxes now and paying only fire sale rates in the future on that money stashed abroad.
The JCT analysis in response to Doggett's request for information is available here.
The telecommunications industry lobbying release is available as well (TIA is one of the members of the "working to invest now in America campaign" --WIN--set to win low taxes on repatriation):