Congressional Bill Would Provide Tax Holiday on Corporate Profits Repatriation

A group of lawmakers has introduced a bill that would temporarily lower tax barriers to encourage American companies with earnings overseas to bring those dollars back to the U.S. for investment.  

The legislation, known as the Freedom to Invest Act of 2011, was introduced Wednesday by Rep. Kevin Brady, R-Texas and Jim Matheson, D-Utah, along with. Robert Dold, R-Ill., Jim Cooper, D-Tenn., Devin Nunes, R-Calif., and Jared Polis, D-Colo.

Currently, more than $1 trillion in capital earned by American companies and workers is stranded overseas because of the tax laws, they pointed out. "Why, in this weak economic recovery, would we not act now to bring back $1 trillion in stranded U.S. profits back to America for investment?" said Brady, the vice chairman and top Republican on the Joint Economic Committee and a senior member of the House Ways and Means Committee. “This is about creating jobs, expanding U.S. businesses and strengthening American companies.”

At 35 percent, the U.S. has one of the developed world's highest corporate tax rates and a complicated tax structure, the lawmakers pointed out. It is currently to a company's advantage to keep those profits overseas. The Freedom to Invest Act allows the “repatriation” of those profits at a time when private investment and job growth are needed to strengthen the U.S.'s fragile economic recovery.

A similar law passed in 2004 resulted in an inflow of $312 billion in private capital that likely would have stayed abroad otherwise. Companies like Adobe, Oracle and Duke Energy used this cash to create or retain jobs, finance new capital spending and pay down domestic debt.

“Putting more private sector capital in the US economy will strengthen recovery efforts and help reduce the federal deficit,” said Matheson. “Let’s do some good now, for American employers and for the U.S. taxpayer, rather than do nothing by maintaining the status quo.”

“I join today in sponsorship of the Freedom to Invest Act of 2011 because we must put America first and act now to bring an estimated $1.2 trillion American dollars home to create jobs and grow our economy," said Dold. "My home district in Illinois is the third largest manufacturing district in the country and my top priority in Congress is to put our Nation on a fiscally sustainable path to give American job creators the confidence to grow their businesses, invest and create jobs," continued Dold. "The time is now to throw open our gates and allow a flood of private sector stimulus to pour into our economy."

The legislation also includes a disincentive designed to discourage American companies from repatriating earnings at the lower rate and reducing their workforce.

However, the Obama administration opposes the repatriation tax holiday. Assistant Treasury Secretary for Tax Policy Michael Mundaca wrote in a blog post on the Treasury Department’s Web site in March that when the idea was tried in 2004, it did little to create jobs (see Treasury Opposes Repatriation Tax Holiday). “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 just five companies got over one-quarter of the tax benefits of the repatriation holiday, and just 15 firms received more than 50 percent of the benefits. 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.

Still, the legislation enjoys support from many multinational companies. A coalition of them, known as WinAmerica, applauded the introduction of the legislation. The group includes Apple, Cisco, Google, Microsoft, Pfizer, Oracle, Qualcomm, the U.S. Chamber of Commerce, and others.
House Majority Leader Eric Cantor, R-Va., also said he backed the legislation. “"Fundamental reform of our Tax Code is one of the key ingredients needed to get our economy running on all cylinders again while managing down our debt,” he said. “Right now, our corporate tax rate is one of the highest in the industrialized world, making it difficult for American businesses to compete and creating a disincentive for businesses to invest and create jobs here in America.”

Andy Stern, the former president of the Service Employees International Union and currently a senior fellow at Georgetown University's Public Policy Institute, also issued a statement of support. “I continue to believe that this bi-partisan bill offers the quickest and maybe only short term viable proposal for investment and growth in the near term,” he said. “Faced with the real world choice between paying 0 percent in U.S. taxes or paying a 35 percent tax to bring it home, companies have—and will—continue to spend their money overseas. We have an opportunity to bring $1 trillion home today, and I am pleased that theirs is a proposal to do just that.”