As Washington politicians grapple with how to lower the federal deficit, a coalition of powerful corporations has a seemingly tantalizing offer: Give us a big tax break, and we’ll give you $50 billion or more in fresh revenue.
More than two dozen major companies and business groups — including the U.S. Chamber of Commerce and technology giants Apple, Google and Microsoft — have joined together under the banner of the “Win America Campaign” to push for a one-time tax holiday on overseas profits.
The well-funded effort features a team of influential lobbyists and political strategists from both parties, including former White House communications director Anita Dunn, who is leading a Web and media campaign by SKDKnickerbocker. The group’s eight-person lobbying team is spearheaded by James O. McCrery III , a former Republican congressman from Louisiana, and Jeffrey A. Forbes, a former senior aide to Senate Finance Committee Chairman Max Baucus (D-Mont.), records show.
The idea is to encourage U.S.-based corporations to bring back, or “repatriate,” up to $1 trillion now stashed in overseas tax havens by sharply reducing standard corporate income tax rates on that money from 35 percent to perhaps 5 percent. Backers argue that the move would create thousands of jobs and other investments; the lure for politicians is additional tax revenue that the government won’t collect if the money remains abroad.
“Our broken tax system currently penalizes U.S. businesses that want to bring their global earnings home,” said Doug Thornell, a former House Democratic staffer who is now a spokesman for the Win America Campaign. “The simple truth is there are few policy options left that will inject this amount of money into our economy and cost taxpayers next to nothing.”
But opponents, including many labor unions, say the effort is a de facto giveaway for multinational corporations that rewards tax-dodging while having little positive economic impact. They say the same tax-holiday idea was tried in 2004 with little apparent benefit to regular Americans.
The Obama administration also says it opposes a holiday. As the idea gained speed this spring, the Treasury Department issued an unusually forceful statement portraying it as a wasteful corporate giveaway that would distract from the need for broader corporate tax reforms.
“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,” Michael Mundaca, the assistant secretary for tax policy, wrote in March. “Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions.”
Mundaca and other critics point to studies by the Congressional Research Service and others showing that the earlier program had little positive economic impact. Many beneficiaries actually reduced their workforces during the same time period: Hewlett-Packard, for example, announced more than 14,000 U.S. job cuts even as it brought back $14.5 billion in overseas money.
In the most recent study of the 2004 law, to be published in June, a team of researchers from MIT, Harvard Business School and the University of Illinois found that up to 92 percent of the estimated $299 billion brought back to the United States went to shareholders. That happened despite language in the statute aimed at forbidding companies from using the money to raise dividends or repurchase shares, the study found.
“Certainly the companies lobbying for it at the time billed it as a way to create jobs,” said MIT professor Kristin Forbes, who served on President George W. Bush’s economic council when the tax holiday was approved. “That’s not what appears to have happened.”
Peter Colavito, director of government relations at the Service Employees International Union, said past experience shows that another tax holiday is a bad idea.
“After hauling in record profits last year, why should corporations get another tax giveaway?” he asked.
But one labor leader, former SEIU president Andy Stern, disagrees with his former employer on repatriation. He said in an interview that granting a tax holiday may be worth the drawbacks.
“The issue is, we have this money sitting there, and we have needs in this country,” said Stern, who advocates using revenue from a tax holiday to fund an infrastructure bank. “Unless we’re going to get comprehensive tax reform, it doesn’t make sense to have it just sit there while we have a policy fight.”