The Obama administration on Wednesday reiterated its opposition to allowing corporations to bring overseas profits back to the United States at a reduced tax rate, arguing this should only be considered as part of a broader overhaul of the corporate tax code.
In a blog entry posted Wednesday, Michael Mundaca, the assistant Treasury secretary for tax policy, says the push for a so-called repatriation holiday would take attention away from the bigger goal of corporate tax reform. He also cast doubt on the idea that a repatriation holiday sparks economic growth.
“Comprehensive reform can be done,” Mundaca writes. “We should not allow ourselves to be distracted from that goal.”
Cisco, Oracle and other companies have started pushing for a repatriation holiday similar to one enacted by Congress in the middle of the last decade, which allowed companies to bring income stashed abroad back to the United States at the reduced rate of 5.25 percent. The current top marginal corporate tax rate is 35 percent.
Supporters of such a plan have said that America’s tax rate on repatriated earnings is vastly higher than many other developed countries' and that, if companies can bring their profits back at a reduced rate, it would result in investments in areas like research and development and create new jobs.
“By permitting companies to repatriate foreign earnings at a low tax rate — say, 5 percent — Congress and the president could create a privately funded stimulus of up to a trillion dollars,” John Chambers of Cisco and Safra Catz of Oracle wrote in an October op-ed in The Wall Street Journal. “They could also raise up to $50 billion in federal tax revenue. That's money the economy would not otherwise receive.”
Mundaca, citing data from the last repatriation holiday, appears skeptical of some of those claims, though he does echo earlier statements from Treasury Secretary Timothy Geithner that the treatment of overseas profits could be dealt with in a broad corporate tax reform package.
“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 writes. “Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions.”
The assistant secretary also asserts that a small group of 15 corporations reaped the majority of the benefits from the last holiday and points to Congressional Research Service data stating that companies that gained the most from the policy actually cut jobs in 2005 and 2006.
“Today, when U.S. corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation,” Mundaca writes.
Others skeptical of the idea have also said that enacting another holiday would encourage companies to continue keeping profits overseas, because they could feel confident that another holiday would be on the way.
A spokeswoman for Cantor responded to the Treasury blog by agreeing that tax reform needed to be pursued, but also calling for more presidential leadership on the issue.
"In the meantime, repatriation is an option that can be considered immediately to bring capital from American companies back into our country and begin to spur economic growth and encourage businesses to grow and create jobs," Cantor spokeswoman Laena Fallon said in a statement.
It remains to be seen how a repatriation measure would fare in Congress. Rep. Brian Bilbray (R-Calif.) introduced legislation on the topic this month, but it has yet to receive much support from colleagues. And during the 2009 stimulus debate, a repatriation measure pushed by Sens. Barbara BoxerBarbara BoxerFeinstein to hold campaign fundraisers, a hint she'll run again Becerra formally nominated for Calif. attorney general 10 freshmen to watch in the new Congress MORE (D-Calif.) and John Ensign (R-Nev.) fell well short of passage, garnering 42 votes.
This story was updated at 11:14 a.m.