Time For a ‘Repatriation’ Tax Holiday?

With all of the talk about job creation, we’re hearing more and more about encouraging big companies to quit stashing profits abroad, and bring them back home for investment.  The contra, of course, is the potentially onerous U.S. income tax burden on businesses which would slice off a large portion of those profits before the first dollar is put to work.

So Congress has been kicking around the idea of providing a “repatriation” holiday to temporarily solve the problem – H.R. 1834, the Freedom to Invest Act of 2011 was recently introduced, to allow for a U.S. corporation to deduct dividends received from a controlled foreign corporation for a one year period, beginning on the date of enactment.

A similar measure has been introduced in the Senate – S. 1671, the Foreign Earnings Reinvestment Act, which would further provide incentives for companies to use repatriated earnings to increase payrolls, among other things.

As usual, of course, the sentiment to move forward in this manner is far from unanimous.  A recent report issued by the Democratic staff of the Senate Permanent Subcommittee on Investigations says that the 15 companies which benefited the most for a similar 2004 program actually cut more than 20,000 net jobs, and decreased the pace of their research spending.  The report cited the 2004 program as “a failed tax policy” that cost the U.S. Treasury $3.3 billion in estimated lost revenues over 10 years!

“There is no evidence that the previous repatriation tax giveaway put Americans to work, and substantial evidence that it instead grew executive paychecks, propped up stock prices, and drew more money and jobs offshore,” according to Senator Carl Levin (D-Mich).  “Those who want a new corporate tax break claim it will help rebuild our economy, but the facts are lined up against them.”

Stay tuned…..