DECEMBER 14, 2011
By John D. McKinnon
Driving another spike in the idea of a corporate tax holiday, Sen. Carl Levin (D., Mich.) released a study suggesting much of the money companies claim is trapped overseas already is sitting in U.S. bank accounts.
The study is another blow to the already-bleak hopes of major multinationals for a corporate tax holiday that they say would let them bring home as much as $1 trillion in earnings to the U.S. Earlier this week, House Republicans approved an end-of-year tax bill that didn’t include the tax holiday, despite a big push by multinationals.
The companies argue that without the tax holiday, much of their foreign earnings will sit offshore indefinitely, and eventually be reinvested overseas, because bringing it home to invest in the U.S. would subject it to the high U.S. corporate tax. They say allowing them to bring the money back with a reduced tax rate – say, around 5% – would give the domestic economy a much-needed lift.
But on Wednesday, Mr. Levin cited a study by the Permanent Subcommittee on Investigations, which he chairs, showing that about half the foreign earnings of 27 big U.S. multinationals are already in U.S. bank accounts, or invested in U.S. assets such as Treasury debt, U.S. stocks and bonds and mutual funds. The money escapes U.S. tax because it’s still held by foreign subsidiaries of the multinationals, and hasn’t been paid to the U.S. parent companies.
“Right now U.S. multinationals are benefiting from the stability and security that U.S. banks, U.S. investments and U.S. dollars provide, without paying their fair share to sustain our economy,” Mr. Levin said.
A group representing the multinationals, the WIN America Campaign, said Mr. Levin’s analysis ignores the fact that the money still isn’t available to the parent companies themselves; that would trigger U.S. tax.
“The fact that foreign subsidiaries of U.S. companies have deposits in U.S. banks or in U.S. bonds does not mean that their American parent companies are able to deploy these funds in the U.S. economy,” the coalition said in a statement. “Like any other foreign company, foreign subsidiaries of U.S. companies are able to utilize the U.S. banking system, but it would be better for the U.S. economy if American companies could actually put this money to work in our domestic economy. Even these U.S. deposits will eventually be spent overseas without a change in our tax laws. Sen. Levin’s one-sided, partisan report does nothing but attempt to score rhetorical points while U.S. profits continue to be invested around the world instead of here at home due to a seriously flawed tax code.”
The U.S. is one of the few major economies that still seeks to tax corporations on their overseas earnings; other countries tax only domestic earnings. The U.S. also has one of the world’s highest corporate tax rates, 35%, after years of rate-cutting by other countries. In an effort to level the playing field for American multinationals, the U.S. allows them to defer U.S. tax on their earnings until the money is brought home through repatriation.
A number of companies such as Cisco Systems Inc., Microsoft Corp. and Apple Inc. have been pushing for the tax holiday, and many GOP lawmakers have sided with them. But many Democrats – as well as some influential Republicans – believe that granting the tax holiday now would weaken momentum for a broader tax overhaul. They’re holding out to do everything at once.