Rep. Lloyd Doggett on the Republican corporate tax holiday plan: To Republicans, deficits only matter when asking seniors and students to sacrifice
Republicans again put corporate special interests ahead of our nation's best fiscal interests. If this sorry Republican plan didn't already have a bad track record, it might be easier for them to promote it. Our economy will see little benefit in rewarding large multinationals for shipping even more jobs and revenue offshore, though wealthy shareholders may see substantial benefits. This latest ploy by large multinational corporations and their Republican allies to avoid paying their fair share for our national security and economic well-being carries a hefty price tag -- nearly $80 billion. This means we will have to borrow more from foreign creditors or shift a greater burden to American small businesses and working families. To Republicans, deficits only matter when asking seniors and students to sacrifice."
Background: In general, income earned by U.S. companies in the United States is taxed currently while income earned abroad is only subject to U.S. taxes when it is "repatriated" back to the United States. This system provides obvious incentives to avoid paying current taxes by investing offshore and creating jobs overseas instead of in America. After shifting this money offshore, multinational corporations continually seek ways to bring their foreign profits home without paying their fair share of U.S. taxes.
In 2004, corporate lobbyists convinced Congress to allow multinationals to temporarily bring offshore profits back into the U.S. paying only a 5.25% corporate tax rate, not the regular 35% rate. The claims then were the same as now—give us this tax break and we will invest the repatriated profits here and create jobs. Unfortunately, job creation did not happen last time and it won't happen now. 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.
The Joint Committee on Taxation cost estimate: The Joint Committee estimates that repeating the tax break will ultimately cost taxpayers $78.7 billion.
The Joint Committee based its cost estimate on three major components:
1) Windfall: On dividends that multinationals were planning to repatriate soon without any tax break, the repatriation break amounts to a pure windfall.
2) Changes to timing and amounts of repatriated dividends: Decisions to accelerate the repatriation of dividends or change repatriated amounts will affect when and how this income is taxed. For example, a $100 dividend that would have been repatriated under present law in 2013, and would have resulted in $25 of U.S. tax at that time, would now incur just $4 in U.S. tax in 2011.
3) Prospective decision making: 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.
In other words, a repatriation tax break will encourage shifting even more revenue and jobs out of the United States.
You can view the Joint Committee on Taxation's full response to Mr. Doggett's revenue request by clicking here.