Foreign profits tax break gets boost in US Senate

Thu Oct 6, 2011 12:43pm EDT

* Senators Hagan, McCain introduce dual-track legislation

* Multinationals would get tax break on overseas earnings

* Proposal likely to factor in deficit, tax reform debate

By Kevin Drawbaugh

WASHINGTON, Oct 6 (Reuters) - Corporations seeking a tax break on overseas profits scored a win on Thursday in the U.S. Senate with the introduction of a bill offering two possible reduced tax rates for repatriating earnings from abroad.

Senators Kay Hagan and John McCain unveiled bipartisan legislation that would let multinationals bring foreign profits into the country at an 8.75 percent tax rate or, if they boost hiring, at 5.25 percent. The statutory rate is 35 percent.

McCain, a Republican, said the bill would be offered as an amendment to President Barack Obama's jobs package when that measure arrives in the Senate, if Democratic Senate leadership does not on its own include the tax provision in the package.

The Hagan-McCain bill is seen as having little chance of passage on its own, but it could be an important bargaining chip as lawmakers and the Obama administration grapple with deficit reduction, tax reform and job creation.

Corporations that have been pushing for months for the tax break applauded the proposal, formally titled the Foreign Earnings Reinvestment Act 2011.

It would slap a penalty on corporations that repatriate profits from overseas and then cut payrolls. The penalty would be $75,000 per full-time position eliminated.

Calling the bill "a critical step forward in the effort to jump-start our economic recovery," WIN America campaign director Karen Olick said it would cause "upwards of $1 trillion" to be brought into the country by businesses.

WIN America is a coalition of multinationals -- including high-tech giants Apple Inc (AAPL.O), Cisco Systems Inc (CSCO.O), Oracle Corp ORCL.O and Microsoft Corp (MSFT.O) -- lobbying Congress for a tax break like Hagan-McCain.

Similar legislation has already been introduced in the U.S. House of Representatives by Kevin Brady, a House Republican. It has support from some Democrats. Hagan is a Democrat.

McCain said at a news conference he held with Hagan that their bill would pump between $50 billion and $80 billion of tax revenue into the U.S. Treasury and create 2 million jobs.

To get the extra-low tax rate of 5.25 percent, under the bill, companies would have to increase "qualified payroll" by 10 percent or more. Qualified payroll means all wages paid to employees that are subject to payroll tax, the senators said.

At issue is an estimated stash of foreign profits worth up to $1.5 trillion that U.S. multinationals have parked abroad to avoid paying the 35 percent U.S. corporate income tax rate.

The companies want to bring these earnings home to the United States, but they do not want to pay the full tax on them. So they are pressing for a tax break.

In 2004-2005 during the Bush administration, under an earlier overseas corporate profit repatriation tax "holiday," 843 corporations brought home $362 billion in overseas income at a 5.25 percent tax rate.

As they did six years ago, proponents of the tax break are representing it as a boost to jobs and the economy, though numerous studies have raised doubts about this.

Reports released on Tuesday by two think tanks said the 2004-2005 tax break did little or nothing to boost the economy or create jobs, despite promises that it would, and said that another such tax break would likely have the same outcome, going to bonuses and dividends rather than new investments.

One of the studies came from the left-leaning Institute for Policy Studies; the other from the conservative Heritage Foundation. WIN America cited studies from still more think tanks that it said support its economic impact claims.

The Joint Committee on Taxation, a nonpartisan research arm of Congress, has estimated that another tax holiday of this sort would boost government revenues at first, but eventually cost taxpayers about $78.7 billion over the next decade. (Reporting by Kevin Drawbaugh, editing by Matthew Lewis)

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Comments (1)
BradReeseCom wrote:
Recommend that Senators Hagan and McCain read the following shocking expose on the push for a “foreign profits tax holiday” by Cisco Systems and its CEO John Chambers:

Revealingly, it was Cisco’s Fiscal Year 2005 Annual Report that specifically detailed its last “foreign earned profits tax holiday” where Cisco repatriated to the U.S. its accumulated income earned abroad:

“On October 22, 2004, the American Jobs Creation Act of 2004 (the ‘Jobs Creation Act’) was signed into law. The Jobs Creation Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations.

“In the first quarter of fiscal 2006, we distributed cash from our foreign subsidiaries and will report an extraordinary dividend (as defined in the Jobs Creation Act) of $1.2 billion.”

So how many new U.S. jobs did Cisco create in Fiscal Year 2006 with all that cash it received from its foreign subsidiaries, especially since according to Cisco CEO John Chambers, Cisco is committed to the U.S. economy and to the American worker?

Well, according to Cisco’s Fiscal Year 2006 Form 10-K (page 10):

A whopping 75% of Cisco’s new job creations were in locations outside the United States!


Brad Reese

Oct 06, 2011 1:09pm EDT  --  Report as abuse
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