By Bernie Becker - 05/16/11 01:56 AM EDT
Proponents of a corporate tax holiday are pushing back against a congressional analysis that says the idea could cost the Treasury billions of dollars in the long run.
Rep. Kevin Brady (R-Texas) and the WIN America Campaign, both of whom are pushing to allow American multinationals to temporarily bring offshore profits here at a drastically lower tax rate, say the Joint Committee on Taxation’s projections strike them as wildly off.
“They factored in some behavioral responses that I just don’t think are accurate,” Brady, who has introduced so-called repatriation legislation with a bipartisan group of House members, said in a phone interview.
The congressional analysis found that one general repatriation plan would bring in roughly $25 billion over the first three years, but eventually lose close to $79 billion over a decade – in part, JCT said, because corporations would repatriate funds during the holiday that had been earmarked for a later date, thus decreasing the Treasury’s take.
The bill introduced by Brady, Rep. Jim Matheson (D-Utah) and others would allow multinationals to bring profits kept abroad to the U.S. at a top rate of 5.25 percent in either 2011 or 2012 – vastly lower than the current top corporate rate of 35 percent. Under current law, U.S. corporations are taxed on profits they make around the world, but can defer paying until they bring that revenue into America.
The new House measure, which also contains provisions intended to discourage corporations from shedding jobs, is similar to a holiday passed by Congress in 2004.
Rep. Eric Cantor (R-Va.), the House majority leader, has expressed some enthusiasm about the bill, as has the WIN campaign – which has close to 40 members, including technology giants like Apple, Cisco and Google. They say that a holiday would inject new revenue into the economy as Washington policymakers work toward more fundamental tax reform.
Skeptics of the previous holiday – including Doggett and Sen. Max Baucus (D-Mont.), the Senate Finance Committee chairman – have expressed doubts that it helped create jobs. Some also say that enacting another holiday would simply encourage multinationals to stash more and more profits abroad, something JCT hinted at in their analysis, and that it would distract from the larger reform push.
Corporate America is also not totally united behind the idea: IBM has indicated that energies would be better focused on a corporate tax overhaul, as did four top corporate financial officers who testified before Congress last week.
Brady and WIN America criticized the JCT projections from a variety of angles. A document the business coalition prepared in response to the JCT analysis declared that the committee vastly undercounted how much multinationals would repatriate, saying that the holiday would entice the return of money that otherwise would be trapped offshore.
“A variety of economists and financial analysts have found that repatriation will generate a significant amount of revenue in addition to providing a major boost to our economy,” the campaign said in a statement. “This money isn’t coming back at the current tax rate, so to claim that it will is disingenuous.”
For his part, Brady asserted that he did not believe a holiday would encourage corporations to keep more profits outside of the U.S.
Doggett – like Brady, a member of the tax-writing House Ways and Means Committee – responded that the backers of a tax holiday were merely shooting the messenger in their criticisms of JCT.
“Even more outrageous than ignoring the views of the accepted authority on taxes – the nonpartisan Joint Committee on Taxation – is ignoring the complete failure of this tax giveaway to encourage job creation in 2004,” Doggett said in a statement.
Brady, who is also the vice chairman of the Joint Economic Committee, also signaled that tax reform was the more important matter.
The Treasury Department, which is working on its own corporate tax reform plan, has said that it will not look at repatriation outside of the tax overhaul debate. And Rep. Dave Camp (R-Mich.), the chairman of House Ways and Means, has indicated that he supports repatriation efforts, but that his focus is on comprehensive tax reform
“We’re hopeful that people line up behind fundamental reform sooner rather than later,” Brady said.