Sunday, November 6, 2011

No corporate tax holiday
Published: November 5, 2011
To avoid paying taxes, U.S. corporations are sitting on a pile of cash around the world, as much as $2 trillion. That's besides another $2 trillion that the companies are hoarding, rather than investing in the United States.

Now many members of Congress want to reward the corporations for their tax avoidance by letting them bring home that money at a tax rate of as little as 3.5 percent, rather than the corporate tax rate of 35 percent.

This is a proven bad idea. Just as they argue now, corporations in 2004 said they would create jobs if only Congress would allow them to bring home, at an exponentially reduced tax rate, hundreds of billions of dollars they had stashed overseas. Congress obliged but the corporations used the money to fight consumer lawsuits, boost dividends, buy back stock, pay down debt and other bottom-line boosters - anything but create jobs.

The repatriation plan now before Congress would reduce rates on all foreign-held money brought home, even though corporations would bring home a portion of the money anyway.

According to the Congressional Research Service, an influx of $1.3 trillion would cause the value of the dollar to surge by up to 7 percent, driving down job-creating exports.

The Joint Committee on Taxation, which analyzes proposed tax policy, calculated that repatriation would produce a short-term federal revenue increase of $26 billion but lose $79 billion over the following 10 years. That is because, having received the largest corporate tax break in U.S. history, the companies again would hoard as much money as possible overseas in anticipation of the next tax holiday.

A study by tax experts Lee Sheppard and Martin Sullivan found that companies that participated in the 2004 tax holiday subsequently doubled the amount of money they held overseas.

A break for repatriation should come only if companies are charged the 35 percent rate if they fail to create jobs, and only if it is part of a much broader tax reform bill that makes tax avoidance less lucrative in the first place.

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