A group of multinational corporations is facing off against the Treasury Department over a massive tax holiday that the companies say could spur the economy and boost hiring. The repatriation tax holiday would allow corporations to temporarily skip tax payments when they bring overseas profits back to the U.S.
The federal government currently taxes businesses up to 35 percent on overseas earnings. But Win America, a coalition of multinational corporations including Apple, Google, Microsoft and Pfizer, argues that a temporary tax holiday would allow businesses to invest an estimated $1 trillion in America, creating jobs in the process.
U.S. Treasury officials aren't biting. Instead, they say the temporary corporate tax holiday demanded by a "narrow group of businesses" would cost billions of dollars, according to Michael Mundaca, assistant treasury secretary for tax policy. A tax holiday, he said in a post on the Treasury Department's new blog, would cost an estimated $30 billion and mostly benefit just a few companies. To pay for it, he adds, taxes for other businesses would have to go up.
Mundaca pointed to the results of the last repatriation tax holiday in 2004:
Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions… the nonpartisan Congressional Research Service reports that most of the largest beneficiaries of the holiday actually cut jobs in 2005-06 – despite overall economy-wide job growth in those years – and many used the repatriated funds simply to repurchase stock or pay dividends.
An alternative solution, Mundaca says, is the comprehensive tax reform being discussed by the Obama administration to make the U.S. economy more competitive.
But David Chavern, head of the U.S. Chamber of Commerce, says comprehensive tax reform will only succeed side-by-side with a tax holiday. The most significant argument, he said in a blog post, comes down to where Americans believe companies overseas profits should end up.
Our current tax code provides every incentive for U.S. companies to never, ever repatriate monies earned overseas back to the United States. Why bring it back just to send a large chunk of it to the government? No other major economy taxes foreign earnings in this way. The better choice for any rational company would be to just leave it overseas and invest it there – creating jobs in other countries that should be created here.
Business executives first asked President Obama for the tax holiday in December. But many companies, Bloomberg reported, were already taking advantage of legal loopholes that allowed them to avoid repatriation taxes. Pfizer, for example, brought it more than $30 billion in 2009 while minimizing taxes.