Economic Stimulus (Part IX): corporate lobbying for "repatriation tax break"

Back in 2004, Congress did something that it claimed was a one-time economic stimulus that would make sense as part of the overall attempt to stimulate more job creation.  As part of the so-called "American Jobs Creation Act of 2004" it passed a repatriation provision--letting multinational corporations that had stored their profits overseas rather bring them back at a very low 5.25% tax rate (compared to the statutory rate of 35%).  Of course, "good" corporations that had made a practice of regularly repatriating their overseas profits to reinvest in the US didn't get much benefit from the repatriation provision.  They had brought their profits back and paid taxes on them regularly, so they didn't have much to bring back at the cheap tax rate.  "Bad" corporations (the ones lobbying most heavily for the provision, one can safely assume) had extensive profits stored overseas, and were able to bring huge amounts back with hardly any tax. 

Furthermore, while there were some constraints on what the profits could be used for, there was no requirement that the companies that got the good tax rate actually create jobs.  And many of the companies with large amounts of low-taxed repatriated profits actually laid workers off, including Pfizer, Ford, Merck, PepsiCo, and Honeywell International.  So much for the job-creating stimulus effect--it didn't seem to work.  In fact, the Senate Permanent Subcommittee on Investigations, headed by Carl Levin, is now investigating whether multinationals abused the tax break, including a survey to quantify the change in employees for participating companies from 2002 to 2008, stock repurchasees and expenditures on R&D.   See Donmoyer, Senate Panel probles U.S. Tax Break on Imported Profit, Feb. 2, 2009 (discussing the proble and noting that Pfizer repatriated $37 billion--more than any other single company--and ended up closing plants and cutting 9000 jobs).

Of course, a bad effect of the deal was that even "good" corporations that had been repatriating profits regularly (good for the US economy) now had an incentive to store their profits overseas too, so that they wouldn't be such stoogies the next time a repatriation provision got passed.   Companies that hadn't created any offshore tax haven units had a big incentive to create them now--so that they could participate in the repatriation tax loophole the next time the Big Corporate lobby was able to push it through Congress.  And, of course, multinationals had a big incentive to lobby for this provision as soon as a good opportunity presented itself--years of storing profits overseas buttressed by an occasional year of "cheap" tax on repatriation adds up to a very low share of the US tax burden for those multinationals. 

In addition to these criticisms of the provision in terms of accomplishing its stated goals, there are a number of corporate policy criticisms as well.  It may have raised some revenues in the short term ("bad" companies perhaps repatriated income at low taxes that they might not have repatriated at all at higher taxes), but also it had high long-term costs in terms of corporate governance.  See Jessica Kornberg, Section 965: A Traditional Corporate Tax Policy Evaluation, available here on expresso.

In order not to encourage the various negative incentives, Congress said it would never repeat the provision.  But of course corporate lobbyists don't take "never" at face value.  Never, in fact, is just an opportunity to lobby harder.

Well, surprise.  One of the corporate tax breaks being lobbied for in the context of the stimulus package is...you guessed it, low-tax repatriation of foreign funds. 

• See, e.g., Allen Sinai, A $545 Billion Private Stimulus Plan: Let's Bring Home Foreign Earnings Without a Tax Penalty, Op-Ed, Wall St. Journal, Jan. 28, 2009.  Sinai is an economist at Decision Economics hired by the Business Roundtable (funded by Big Corp companies like Eli Lilly and Oracle) to make a study demonstrating the way repatriation acts as an economic stimulus.  
• Cf Lee Sheppard and Martin Sullivan, Repatriation Aid for the Financial Crisis?, 122 Tax Notes 7, Jan. 5, 2009 (critiquing Sinai's 2008 study and indicating that "no matter what the macroeconomic problem, American business will adapt its arguments to present tax reduction as the solution [s]o multinational companies are busy in Washington peddling their favorite tax reduction nostrums newly fluffed up as cures for the asserted liquidity crisis [which is really a bad debt crisis]).
• See also Business Roundtable, Letter to President-Elect Obama re: Economic Recovery Guiding Principles and Emergency Legislation, Jan. 8, 2009 (urging a number of business tax breaks, including reduction in the corporate rate, cutting pension funding requirements, repatriation of foreign subsidiary earnings, carryback of NOLs, waiving the 90% AMT limitation, extending bonus depreciation, investment tax credit, accelerated deduction for manufacturing (which amounts to an additional corporate rate reduction for very broadly defined "manufacturing" industries), extended carryback for business credits and AMT credits, ability to monetize tax credits,  restrictions on use of capital losses, acceleration of bad debt deductions, reduction of estimated tax payments, and exclusion of debt repurchases from income).
• See Bloomberg piece, above (noting that the U.S. Chamber of Commerce and various companies such as Oracle, Eli Lilly, Dell and Hewlett-Packard are lobbying for repatriation).

Both Center on Budget and Policy Priorities and Citizens for Tax Justice analyse the current lobbying in the context of the administrative change.  See  CTJ, Will Congress Make itself a Doormat for Corporations that Avoid U.S. Taxes?, Jan. 30, 2009; CBPP, Proposed Tax Break for Multinationals Would be Poor Stimulus: Dividend Repatriation Tax Holidy Failed in 2004, Unlikely to Work Now, Jan. 30, 2009.  CTJ suggests that companies may be worried that their offshore tax avoidance schemes will not withstand scrutiny under the new administration, and so they are willing to trade their current zero tax rate (on offshore tax haven profits) for the 5.25% tax rate (bringing some of the shifted profits home).

Congress really should not pay attention to these lobbying efforts for corporate tax breaks.  Spend the money on groundbreaking public infrastructure and provide tax breaks to people who need help to make it in these tough times. Repatriation made no sense in 2004.  It really makes no sense now.