UPDATE 1-Foreign profit tax break in '04 called costly flop
* Top Senate Democrats urge rejection of tax "holiday"
* Corporate lobbyists pour on pressure for tax break
* Only chance may be as part of bigger, broader bill
* Most studies show '04-'05 break did not boost jobs
WASHINGTON, Oct 11 (Reuters) - Congress should reject another big tax break for overseas corporate profits because the last one in 2004-2005 was a costly failure, U.S. congressional investigators said in a report that immediately drew fire on Tuesday from an army of business lobbyists.
The Senate Permanent Subcommittee on Investigations' report found that the repatriation tax holiday six years ago cost the U.S. Treasury $3.3 billion in lost revenue and "produced no appreciable increase in U.S. jobs or domestic investment."
A second such tax break, it said, would also cut government revenues, fail to create jobs and increase incentives for U.S. corporations to move more jobs and investment abroad.
At issue is an estimated $1.5 trillion in profits stashed abroad avoiding corporate taxes. In a statement, the panel's chairman urged lawmakers to refuse another tax give-away.
"We can't afford a tax break that would deepen the deficit, disadvantage domestic firms, and push more corporate dollars offshore, while failing to stimulate the economy," said the chairman, Democratic Senator Carl Levin.
Supporters of the tax break attacked Levin's report, with the Information Technology Industry Council, a lobbying group for Silicon Valley, saying the report was "stuck in the past" and "flies in the face of today's economic reality."
The fight comes as Congress and the Obama administration grapple with a sky-high budget deficit, an outdated U.S. tax code riddled with loopholes, and a sluggish economy.
With the government short on stimulus options, proponents of another overseas corporate income repatriation tax "holiday" are framing it as a way to boost the economy and hiring.
"A repatriation holiday could deploy money, as much as $1 trillion, into the economy," said Bruce Jostens, a senior executive at the U.S. Chamber of Commerce, the nation's largest lobbying group for large corporations.
That money could be deployed into the economy without a tax break, of course. However, corporations do not want to bring it into the country because then they would have to pay the full 35 percent corporate income tax rate on it. So, sensing that the time is right for a win, they are seeking a tax break.
BIG 'ASK' BY PHARMA, TECH
"Repatriation is one of the major 'asks' by big pharma and big tech, and is an important bargaining lever in the larger game of comprehensive corporate tax reform," said MF Global policy analyst Chris Krueger.
Legislation that would allow the repatriation tax break -- estimated to come at a cost to taxpayers of nearly $80 billion over 10 years -- was offered last week in the Senate. A similar bill emerged months ago in the House of Representatives.
Backed by a multimillion-dollar lobbying campaign, this legislation has some bipartisan support on Capitol Hill, but analysts do not expect it to be approved on its own. Rather, it could be tacked onto broader tax reform and spending bills.
Representative Sander Levin, the top Democrat on the tax-writing House Ways and Means Committee, told reporters on Tuesday that he and Republican committee Chairman Dave Camp agree repatriation should be discussed as part of tax reform.
"That's been his position; it's been mine," said Levin, who is the brother of Senator Carl Levin. "I am in favor of looking at all of these issues as part of corporate tax reform."
The Obama administration takes the same position.
Numerous studies similar to the one released by Senator Carl Levin's subcommittee have said employment and investment gains would not likely result from a repatriation holiday.
Senator Levin was joined by Democratic Senator Kent Conrad in writing to Congress' deficit-reduction "super committee," urging members to refuse lobbyists' pleas.
"I'm hoping the facts can break through the lobbying frenzy over yet another corporate tax give-away that makes no sense and would damage our economic recovery," Levin said.
In 2004-2005, under a Bush administration program, 843 U.S. multinational corporations brought home $362 billion in overseas income at a 5.25 percent tax. Most of it went to stock buybacks and dividend increases, studies said.
Goldman Sachs analyst Alec Phillips said last week that another repatriation holiday "would most likely increase dividend payments and share buybacks ... we would not expect a significant change in corporate hiring or investment plans."
He added that the issue will "receive additional attention over the next several weeks. However, we are skeptical that another repatriation tax holiday will become law this year."