UPDATE 1-Twin rebukes jolt US business tax holiday campaign
* Think tanks on left and right nix push for tax holiday
* Reports question jobs impact of foreign profit tax break (Adds Heritage Foundation study, Thornell comment)
WASHINGTON, Oct 4 (Reuters) - A lobbying push in the U.S. Congress to give major corporations a tax break on their overseas profits suffered a setback on Tuesday when influential left- and right-wing think tanks both issued reports rejecting it.
The left-leaning Institute for Policy Studies said 10 big companies, including banking giants Citigroup Inc (C.N) and Bank of America Corp (BAC.N), laid off workers after enjoying a similar foreign profits tax break in 2004-2005.
Despite promises that the tax break would boost the economy and stimulate hiring, the institute said that did not happen six years ago, and it likely would not happen this time either, if Congress were to approve another tax "holiday."
The conservative Heritage Foundation, normally in conflict with the institute, agreed on this one.
The Bush administration's 2004-2005 income tax repatriation holiday "did not produce the hoped-for subsequent surge in domestic investment," the foundation said in a report.
"The current proposal would cut taxes, which is generally a good thing, but if another repatriation tax holiday were enacted, one should expect a similar result as last time: specifically, a surge in repatriations and little appreciable increase in domestic investment or job creation," it said.
At issue is an estimated $1.5 trillion in foreign profits that U.S. multinationals have parked abroad, avoiding the 35-percent U.S. corporate income tax. The companies want to bring these earnings home to the United States, but they do not want to pay the full tax. So they are pressing for a replay of the Bush-era tax break, except on a larger scale.
In 2004-2005, 843 corporations brought home $362 billion in overseas income at a 5.25-percent tax rate.
Legislation under study in Congress would let corporations repatriate their foreign profits again at the same rate. And just as they did before, companies are today portraying this proposal as a boost to jobs and the economy.
EXECS, SHAREHOLDERS GOT GAINS-REPORT
Chuck Collins, co-author of the institute's report, was skeptical. "History shows that many 'tax holiday' companies use repatriated profits to reward executives and other shareholders, then lay off workers. Corporate tax holidays have resulted in precious few U.S. jobs," Collins said.
The institute's report concluded that 58 corporations which accounted for 70 percent of overseas profits repatriated under the Bush tax break collectively saved $64 billion in taxes, then cut 600,000 jobs through layoffs in subsequent years.
"A study blaming seven years of job losses on repatriation is truly bizarre and isn't worth the paper it's printed on," said Doug Thornell, spokesman for WIN America, a coalition of multinationals lobbying in Congress for the tax break.
"The fact is, the year after repatriation was passed, unemployment dropped by half a point and (gross domestic product) grew by 1.3 percent," Thornell said.
The New Democrat Network, a centrist group, issued a report in August saying an overseas tax repatriation holiday would bring new net revenue into the U.S. Treasury.
$78.7 BLN COST TO TAXPAYERS SEEN
At a time of soaring government deficits, the Joint Committee on Taxation, a nonpartisan congressional research arm, has estimated that another tax holiday, like the one favored by WIN America, would eventually cost taxpayers about $78.7 billion over the next decade.
Besides Citi and Bank of America, the institute's report focused on technology group Hewlett-Packard (HPQ.N), drugmakers Pfizer Inc (PFE.N) and Merck & Co Inc (MRK.N), and manufacturers Ford Motor Co (F.N) and Caterpillar Inc (CAT.N).
Telecom giant Verizon Communications Inc (VZ.N) and chemical makers Dow Chemical Co (DOW.N), and DuPont (DD.N) are also singled out as corporations that "benefited the most financially from the tax holiday and slashed the most jobs."
The U.S. Senate Permanent Subcommittee on Investigations is looking into the results of the 2004-2005 tax holiday as well. A report from the panel is expected within a few weeks, its chairman, Democrat Carl Levin, told Reuters last month.
Merck declined to comment. Other companies did not immediately respond to requests for comment. (Additional reporting by Ransdell Pierson in New York; editing by Howard Goller, Bernard Orr)