Democrats Warming To Tax Repatriation

Posted by Brian Patrick on

FYI – 

  • Urged on by business groups amid a desperate hunt for traction on economic policy, more Democrats are supporting proposals to temporarily reduce the taxes paid by corporations when they bring profits earned abroad back home. ... At an event last week hosted by the centrist Democratic think tank Third Way, Polis, Sen. Kay Hagan, D-N.C., and Rep. Loretta Sanchez, D-Calif., spoke in favor of the idea. NDN, another center-left group, hosted a working lunch on the idea earlier in the month; its global economy expert, former Clinton administration official Robert Shapiro, has been a key advocate for a tax holiday.
  • “It’s of greater interest to Democrats because of the stimulative aspect of job creation, and it does give Democrats a chance to show that they’re at least not the enemy of corporate America,” Rep. Jared Polis, D-Colo., told National Journal on Monday. Polis is sponsoring a bill introduced by Rep. Kevin Brady, R-Texas, that would lower the tax rate from 35 percent to 5.25 percent; four other Democrats are cosponsoring the bill.
  • “We all want to take action to create jobs, but few proposals to jumpstart our economy can generate support from Democrats and Republicans,” Hagan said. “Done right, a repatriation holiday could garner support on both sides of the aisle. We cannot ignore that opportunity.”


Democrats Warming To Tax Repatriation
National Journal
Tim Fernholz
June 20, 2011

Urged on by business groups amid a desperate hunt for traction on economic policy, more Democrats are supporting proposals to temporarily reduce the taxes paid by corporations when they bring profits earned abroad back home. They hope that corporations could bring back as much as $1 trillion to boost the economy, though the effectiveness of the policy is far from clear.

 

“It’s of greater interest to Democrats because of the stimulative aspect of job creation, and it does give Democrats a chance to show that they’re at least not the enemy of corporate America,” Rep. Jared Polis, D-Colo., told National Journal on Monday. Polis is sponsoring a bill introduced by Rep. Kevin Brady, R-Texas, that would lower the tax rate from 35 percent to 5.25 percent; four other Democrats are cosponsoring the bill.

At an event last week hosted by the centrist Democratic think tank Third Way, Polis, Sen. Kay Hagan, D-N.C., and Rep. Loretta Sanchez, D-Calif., spoke in favor of the idea. NDN, another center-left group, hosted a working lunch on the idea earlier in the month; its global economy expert, former Clinton administration official Robert Shapiro, has been a key advocate for a tax holiday.

Some Democrats, especially in the Senate, say Brady’s bill does not have enough restrictions on how corporations use the money they bring home at the special rate. Rep. Adam Smith, D-Wash., is drafting a repatriation bill designed to appeal to skeptics by linking corporations’ tax rates to the number of jobs they create; the holiday rate would be set at 8.75 percent but businesses that create jobs would only pay the 5.25 percent rate.

That skepticism is not unwarranted: Many academic studies of a similar holiday enacted in 2004 say it did little to increase hiring in the United States, and the money was largely used to pay dividends or buy back company stock. Even where repatriated money was spent on capital investment or job creation, it’s not clear the companies spent more than they otherwise would have. Today, when many firms already have strong balance sheets, economists see obstacles to job creation emerging from the lack of demand, not from insufficient resources to invest.

And though the proposal would temporarily increase revenue, as advocates like Andy Stern, the former labor leader, argue, the Joint Taxation Committee has found a holiday will cost the government $79 billion over 10 years as companies continue to hold profits overseas in hopes of another holiday. That JTC study assumes corporations would eventually bring home their profits under the regular tax rate, a belief that promoters of the holiday question.

Serious obstacles still loom large. Key tax writers like Senate Finance Chairman Max Baucus, D-Mont., and House Ways and Means Chairman Dave Camp, R-Mich., have advocated discussing the policy as part of a broader tax reform, but are reluctant to take it up as a separate issue. The Obama administration opposes a tax holiday completely outside of a reform push.

But a comprehensive overhaul has been set aside until the completion of a fiscal deal to raise the debt ceiling and clear the path for fiscal 2012 appropriations. With the window closing for a serious reform effort to begin before 2012 campaigning makes major policy shifts unlikely, and lacking a legislative agenda to push job creation, Democratic proponents say they have little choice but to pursue the policy.

“We all want to take action to create jobs, but few proposals to jumpstart our economy can generate support from Democrats and Republicans,” Hagan said.

“Done right, a repatriation holiday could garner support on both sides of the aisle. We cannot ignore that opportunity.”
 





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