House Republicans are pushing to include a temporary tax holiday on offshore corporate profits in a year-end legislative package that also would contain an extension of the payroll tax cut.
House leaders have been “very encouraging” and are “taking a serious look at including it in a year-end package,” Representative Kevin Brady, a Texas Republican, said in a telephone press conference today.
Brady is a sponsor of legislation that would create a temporary tax holiday, allowing U.S. multinational corporations to bring home offshore earnings at a 5.25 percent tax rate, an 85 percent discount from the 35 percent top corporate rate.
The measure remains a long shot, facing Republican resistance as well as strong Democratic opposition. Representative Steve LaTourette, an Ohio Republican and ally of House Speaker John Boehner, said today after meeting with Boehner that repatriation won’t be in the year-end legislation.
House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, opposes a stand-alone tax holiday and some multinational companies haven’t embraced the concept.
“Repatriation, singularly, is not helpful,” Wayne Monfries, chief tax officer of Beaverton, Oregon-based Nike Inc., said today at a briefing sponsored by the RATE Coalition, a group of companies lobbying for lower corporate tax rates. “I think we have to have corporate tax reform, and repatriation should be part of corporate tax reform.”
Brady and others say a one-time tax holiday would act as a private-sector stimulus and encourage companies to invest money in the U.S. instead of offshore. They view a year-end tax package as a good vehicle for the proposal.
“The clock is ticking and pressure is building for these companies to deploy this income overseas,” Brady said. “We’re losing out on hundreds of billions in investment.”
Representative Darrell Issa, a California Republican, said that in the absence of a more comprehensive overhaul of the tax code, a repatriation holiday would be acceptable.
“If it’s a one-time” holiday, “it’s best in a year-end package,” Issa said as he left a party meeting today.
Representative Richard Neal, a Massachusetts Democrat who sits on the tax-writing Ways and Means Committee, said today that it would be difficult for lawmakers to advance a tax code rewrite if repatriation is taken off the table.
“If you give up now and accept what might be a short-term bonanza or holiday, it’s going to be far harder to get tax reform,” he said.
One of the arguments made by critics of a tax holiday is that it is projected to cost the U.S. Treasury $78.7 billion in forgone revenue over 10 years. Congressional Democrats say companies used money from a 2004 repatriation effort for stock buybacks and dividend payments and in some cases cut jobs.
The WIN America Campaign, a coalition of companies that back a tax holiday, says U.S. businesses are holding more than $1 trillion overseas, much of which could be deployed in the U.S. if it could be brought home at a lower rate. The group’s members include Microsoft Corp., Google Inc. and Apple Inc.
In addition, 52 of 87 Republicans elected to the House in November 2010 released a letter Dec. 5 urging House Republican leaders “to consider repatriation tax policy, this session, to stimulate the economy and get Americans back to work.”
The White House opposes a stand-alone repatriation proposal.
Camp has said he would support a repatriation proposal as part of a comprehensive tax overhaul.
He has rolled out pieces of a tax overhaul plan, including a shift to a territorial system under which 95 percent of U.S. companies’ overseas earnings would be exempt from taxation. His proposal would make U.S. companies subject to a 5.25 percent tax rate on overseas profits over eight years, regardless of whether they bring the money to the U.S.
Brady said a tax holiday wouldn’t eliminate money Camp would need for his plan.
“I don’t see it as a conflict,” Brady said. The pool of offshore capital “is replenishing itself at remarkable speed.”
The Senate’s No. 2 Democrat, Richard Durbin of Illinois, said today that he has gone “back and forth” on repatriation.
“I’m troubled by the notion that these corporations could bring back substantial profits, get preferable tax treatment and not create jobs in America,” Durbin said. “That’s been my hang-up. We tried it once, and that’s exactly what they did. They took it in dividends, and they took it in bonuses and didn’t create jobs in this country.”