A fresh legislative effort to allow companies to return profitsto the U.S. at a lower tax rate will likely run into the sameproblems that have dogged repatriation advocates in recent years:its cost and the lack of guarantees that it will create jobs.

Repatriation legislation introduced yesterday by RepresentativeKevin Brady, a Texas Republican, repeats most of a 2004 law. Itwould allow U.S.-based companies to repatriate, for one year,income earned overseas at a 5.25 percent rate instead of the 35percent statutory corporate rate. The money that would flow to theU.S. — estimated to be as much as $1 trillion — would spur jobcreation and investment, Brady maintains.

“This is about creating jobs, expanding U.S. businesses andstrengthening American companies,” he said yesterday in a statementyesterday about his bill, which was introduced with some Democraticsupport.

Companies including Microsoft Corp., Devon Energy Corp., CiscoSystems Inc. and Brown-Forman Corp. are part of a coalitionlobbying for a repatriation holiday. The House Ways and MeansCommittee will hold a hearing today that will focus on how taxrules affect global competition.

Democrats are countering Brady's proposal with estimates of thegrowing cost of a repatriation effort. Representative LloydDoggett, a Texas Democrat who is a senior member of the Ways andMeans Committee, yesterday circulated an estimate from the JointCommittee on Taxation pegging the cost of a repatriation bill at$78.7 billion. An unsuccessful effort to create a similar holidayin 2009 would have cost the U.S. government about $30 billion overa decade in forgone revenue.

'Greater Burden' “This means we will have toborrow more from foreign creditors or shift a greater burden toAmerican small businesses and families,” Doggett said.Congressional estimators projected that companies would repatriateabout $700 billion if offered a 5.25 percent rate, compared with$300 billion during the tax holiday enacted in 2004.

The estimate released by Doggett considers a generalrepatriation holiday and not the legislation introduced by Brady,who said he is seeking a review from the Congressional BudgetOffice. Brady downplayed the earlier estimates.

“I don't think that score passes the common-sense test,” he toldreporters on a conference call yesterday.

Democrats also maintain that the bill does too little to protectjobs at companies that repatriate overseas funds. They have pointedto such examples as Hewlett-Packard Co., which returned $14.5billion to the U.S. at a low rate in 2004 and cut its workforce by14,500 employees in 2005.

Layoff 'Disincentive' The bill includes whatBrady calls a “disincentive” for layoffs, as it would penalizecompanies that bring home profits at a lower rate and then reducetheir workforce. Companies would have to add $25,000 to theirtaxable income each time they cut their total workforce below thecompany's average.

With a 35 percent tax rate, the provision would increase thecompany's tax bill by $8,750 for each job cut. Edward Kleinbard, aprofessor at the University of Southern California School of Law inLos Angeles, said that won't be enough to discourage layoffs.

“It's not a huge amount at all,” he said. “It's justmisguided.”

Brady defended the provision as “reasonable” and said it “makesthe point that our goal is to create jobs and strengthen jobs.”

Using the Money He said he didn't considerrestrictions on how companies could use the money they bring backto the U.S., leaving open the possibility for businesses to use thefunds to pay for dividends or stock buybacks. Companies werecriticized for such tactics after the 2004 law was passed.

“It would be a mistake for Washington to create artificialrestrictions on the use of this when clearly the aggregate of thisinvestment is going to be very good for the economy,” Bradysaid.

The bill faces obstacles in Congress. House Majority Leader EricCantor, a Virginia Republican, supports a repatriation bill, whileHouse Ways and Means Committee Chairman Dave Camp, a MichiganRepublican, has said he wants to address the issue as part of acomprehensive rewrite of the tax code. Treasury Secretary TimothyGeithner has echoed Camp's view.

Cantor expressed support yesterday for considering arepatriation proposal before a tax overhaul.

“While fundamental reform will take time, repatriation is aninterim step that we can take to encourage businesses to bringinvestment back to our country,” he said in a statement.

The repatriation issue has received less attention in theSenate. The Obama administration opposes a repatriationholiday.

'Major Failure' Critics say the 2004 law didn'tlead to enough job creation to justify the tax break.

“It was a major failure the first time around, and it's going tobe worse this time,” said Chuck Marr, director of federal taxpolicy at the Center on Budget and Policy Priorities, a Washingtonorganization that supports policies that help low-income Americans.“You make it a regular occurrence, you make it an incentive toshift profits and investments overseas.”

Brady introduced the bill with at least three Democraticco-sponsors, Representatives Jim Cooper of Tennessee, Jim Mathesonof Utah and Jared Polis of Colorado.

Bloomberg News

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