WASHINGTON Even if it only spurred buying of yachts and private jets, an overseas profit repatriation tax holiday would give a worthwhile boost to the U.S. economy, Republican Senator John McCain said on Tuesday.
In defense of legislation he is offering in Congress, McCain said his bill would try to ensure that profits brought into the country from abroad at a reduced tax rate would be devoted by corporations to investment and job creation.
"If you brought $1.5 trillion back to the United States of America, it's bound to have some positive effect somewhere," he said at the Reuters Washington Summit. "I don't see how it would not. Even if they buy more yachts and ... corporate jets and all that, it's bound to have some effect."
Co-sponsored by Democratic Senator Kay Hagan, the bill McCain introduced last month would let major corporations bring foreign profits home at a tax rate of either 8.75 percent or 5.25 percent -- the lower rate if a company boosts hiring. The statutory rate is 35 percent.
An estimated $1.2 trillion to $1.5 trillion in profits is now stashed overseas by big multinationals. As long as those earnings remain abroad, no U.S. corporate income tax needs to be paid on them. The minute they come home, the tax is due.
Corporations do not want to pay the full 35 percent tax, so they are portraying their offshore earnings as "trapped" abroad and asking for a tax break to repatriate them. This was last done in 2004-2005 during the Bush administration.
Critics of the proposal say it would only encourage more sheltering of profits abroad. Congressional tax researchers said a 5.25-percent tax holiday would result in an initial boost to government revenues of $25.5 billion, but eventually cost taxpayers $78.7 billion over a decade in lost revenues.
Proponents say the repatriation tax holiday would be a boost to the sluggish economy, although most studies have shown that the Bush repatriation holiday did not result in substantial investment or job creation.
Profits that are overseas "will remain there as long as there's not any change in the tax environment," McCain said.
"You've either got to have the status quo or do something that would incentivize them to come back, bring that money back to the United States," he said.
"I have talked to several of the corporate CEOs and they have said to me, 'Yeah, we would invest in job creation.'"
(Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn)