A report from U.S. Senator Carl Levin calls a tax holiday forrepatriated offshore profits a failed policy that shouldn't berepeated.

The report, released late yesterday, is based on publiclyavailable data and surveys of 20 companies that show theyrepurchased stock and raised executive compensation after a 2004tax holiday rather than increasing research spending or addingjobs.

“It has the opposite effect of what we really need in thiscountry, which is job creation,” Levin said this morning at a pressbriefing. “It's also unfair to the 96 or 97 percent of thecompanies who keep their operations here.”

Levin said the push for repatriation is part of a pattern of“preference for the few at the expense of the many” in the tax codeand public policy that is fueling public anger and frustrationreflected in the Wall Street demonstrations and other protests.

Levin said the report found that after bringing back to the U.S.more than $150 billion in 2004 at the lower tax rate, the top 15repatriating corporations reduced their overall workforces by morethan 20,000 jobs.

Job Cuts

The reductions occurred from 2004 to 2007 and included cuts atPfizer Inc., International Business Machines Corp. and DuPont Co.,according to the report.

“The U.S. Treasury lost out on billions of dollars in taxrevenues with no evidence of the benefits that it expected toreceive in exchange for the loss,” the report said.

The report recommended against another tax holiday on offshoreprofits because of “the harms associated with a substantial revenueloss, failed jobs stimulus and added incentive for U.S.corporations to move jobs and investment offshore.”

Levin, a Michigan Democrat, and Senator Kent Conrad, a NorthDakota Democrat, cited the report in a letter dated today urgingthe deficit-reduction supercommittee to refrain from supporting arepatriation tax break.

The supercommittee is charged with identifying $1.5 trillion inbudget cuts by Nov. 23.

Earlier this year, the Senate Permanent Subcommittee onInvestigations led by Levin sent letters to companies, includingDupont and Cisco Systems Inc., inquiring as to where and how theyhave invested offshore cash and how they plan to spend it if wasrepatriated.

The new report doesn't address those issues.

Lobbying Efforts

Levin released the report as other lawmakers are trying to buildsupport for a repeat of the 2004 tax holiday. Last week, DemocraticSenator Kay Hagan of North Carolina and Republican John McCain ofArizona proposed letting companies return offshore profits at a toptax rate of 8.75 percent, compared with the 35 percent statutoryrate.

Companies such as Pfizer, Google Inc. and Cisco have beenlobbying Congress for a tax holiday, contending that could unlockmore than $1 trillion in profits that are held offshore. They saybringing home the profits at a low rate would spur hiring.

Under U.S. tax law, multinational companies owe federal incometaxes on their worldwide profits. They receive tax credits forforeign taxes paid and can defer U.S. taxation until they bring theprofits home.

Levin's report focuses on what happened after Congress enacted arepatriation tax holiday in 2004 and offered companies a 5.25percent tax rate. According to the Internal Revenue Service,companies brought back $312 billion that qualified for thepreferential rate.

Job Growth

According to the report, only two companies — Oracle Corp. andMicrosoft Corp. — said the money they repatriated to the U.S.contributed to job growth.

Levin said Oracle used repatriated money to buy Peoplesoft Inc.and reduce its workforce by thousands of employees, while countingthe remaining Peoplesoft workers as a net increase in overallemployment.

“That is an Orwellian way to show how repatriation increasesjobs,” Levin said.

In a statement, Oracle Senior Vice President Ken Glueck didn'tdirectly address Levin's comment. He said Oracle has more thandoubled its workforce since 2004 and is now “hiringaggressively.”

“The only news in Senator Levin's results-oriented 'study' isthat he still opposes repatriation,” said Glueck, whose company ispart of the pro-repatriation coalition. “With unemployment over 9percent and more than $1 trillion waiting to be put to work in theUnited States, one would have thought he would revisit hislong-standing opposition.”

'One-Sided' Report

In a statement late yesterday, the WIN America Coalition ofmultinational companies lobbying for the tax holiday criticized theLevin report as “one-sided” and a recycled “mash-up of oldstudies.”

The 2004 experience has prompted some lawmakers, includingHagan, to attempt to tie lower rates for repatriated profits to jobcreation. Under her bill, companies that add jobs would be able toget a tax rate as low as 5.25 percent.

Others, including Democratic Senator Charles Schumer of NewYork, have expressed openness to a repatriation holiday if anyproceeds were used to fund an infrastructure bank.

Senator Orrin Hatch, the top Republican on the FinanceCommittee, was cool to the idea.

“I'm not very enthused about an infrastructure bank,” Hatchsaid. The Utah lawmaker said such a proposal would be unlikely togain much Republican support.

The Obama administration opposes a stand-alone repatriationholiday. The top Republican tax writer in the House, RepresentativeDave Camp of Michigan, wants to consider the issue as part of abroader overhaul of the tax code.

Stock Buybacks

Along with other studies of the 2004 tax holiday, Levin's reportfinds that companies that repatriated the most money acceleratedstock buybacks. According to the report, 12 of the top 15repatriating companies increased stock repurchases from 2004through 2007.

The Levin study also echoes others that found companies haveadded to their overseas stockpiles since 2004.

That phenomenon has helped turn a repatriation holiday from amodest tax cut into a much larger one. In 2004, the congressionalJoint Committee on Taxation estimated that the government wouldforgo $3.3 billion in revenue over 10 years.

This year, the nonpartisan committee projected that a repeat ofthe 2004 tax holiday with a 5.25 percent rate would cost theTreasury $78.7 billion, in part because companies would shift moreprofits offshore after a holiday and hold them there inanticipation of another round.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.