Corporate repatriation legislation to be unveiled today by Senators Kay Hagan and John McCain would let U.S. businesses bring home offshore profits at an 8.75 percent tax rate.
The rate on repatriated profits would drop to 5.25 percent if a company’s payroll expanded during 2012, according to a summary of the bill confirmed by an aide to McCain, an Arizona Republican. The current top corporate rate is 35 percent.
To qualify for the lowest tax rate, a company would have to increase its payroll by 10 percent as measured by additional workers or higher employee pay.
Senate Majority Leader Harry Reid said yesterday that the proposal from McCain and Hagan, a North Carolina Democrat, won’t pass the Senate as a stand-alone bill and must be coupled with infrastructure improvement provisions to advance.
“It won’t just be simply repatriation,” the Nevada Democrat said. Corporate tax holiday legislation “will be part of an infrastructure program,” Reid said in a brief interview. He declined to provide details.
Independent studies showed that when a tax holiday was last offered, in 2004, the lower tax rate for returning profits spurred little hiring or domestic investment. Most of the money was used to buy back stock. Democrats have said they are concerned that could happen again with a tax holiday.
Under the Hagan-McCain proposal, if a company repatriates profits and then reduces its staff, it would be required to add $75,000 to its gross income for every position eliminated.
That’s a different equation than that included in repatriation legislation sponsored by Representative Kevin Brady, a Texas Republican, which requires a company to increase its taxable income by $25,000 for every position cut.
Brady’s bill would allow companies one year to repatriate offshore profits at a tax rate of 5.25 percent.
The congressional Joint Committee on Taxation has estimated that a tax holiday would cost the Treasury $78.8 billion in forgone revenue over 10 years if the money was brought back to the U.S. at a tax rate of 5.25 percent.
Senator Charles Schumer of New York, the chamber’s No. 3 Democrat, said in June that Senate Democrats might be open to using the short-term revenue provided by a corporate tax holiday to finance an infrastructure bank.
Using proceeds of a tax holiday to pay for infrastructure projects would mark a difference between Senate Democrats and the Obama administration on the issue. The administration has said that it won’t consider repatriation outside of a broader overhaul of the tax code.
Corporate Lobbying Campaign
Large multinational companies including Pfizer Inc., Apple Inc. and Cisco Systems Inc. have been lobbying Congress to let them return an estimated $1.4 trillion of overseas profits to the U.S. at a low rate. The companies say the infusion of cash would boost the economy and lead to increased employment.
Companies advocating repatriation have mounted an intensive lobbying campaign, working individually and through a Washington-based group called the WIN America Coalition.
Besides the Brady and Hagan-McCain proposals, two other measures that address repatriation are pending in Congress.
Legislation proposed by Representative Shelley Berkley, a Nevada Democrat, would let companies bring home offshore profits at a 25 percent tax rate, and lower if they increase their payrolls.
Senator Mike Lee, a Utah Republican, has proposed an amendment to a currency bill now being considered that would lower the tax rate for returning profits to the U.S.