Corporate America is lobbying Congress for a tax holiday on foreign earnings that companies want to bring home, claiming the move will serve as another stimulus for the floundering U.S. economy.

 

The corporations want the tax on foreign earnings to be chopped from 35% to 5.25%. Apple, for example, has $12 billion waiting offshore, Google has $17 billion and Microsoft has $29 billion. On the surface, it sounds like a great idea: the government gains extra tax revenue and the companies have money to invest in the United States, creating jobs just when they’re needed.

 

But in practice the tax holiday doesn’t necessarily work that way. A similar tax break was tried by the Bush administration in 2005, and instead of workers gaining jobs, the only ones who really benefited were corporate shareholders. Then, 843 companies “repatriated” their foreign profits, bringing $312 billion back to the United States. Of this total, 92% was returned to shareholders in the form of stock buybacks and dividends. In fact, 60% of the financial benefits of the last tax holiday went to just 15 of the largest companies.

 

Pharmaceutical giant Merck, for example, brought home $15.9 billion, and then proceeded to lay off workers in the years after the tax break.

 

Another problem with giving corporations another tax holiday is that it could encourage them to hoard their money overseas on the assumption that yet another tax rate break will come around in a couple years.

-David Wallechinsky

 

Companies Push for Tax Break on Foreign Cash (by David Kocieniewski, New York Times)

How Corporations Avoid Paying Income Taxes (by Kathleen Pender, San Francisco Chronicle)

The Unintended Consequences of the Homeland Investment Act: Implications for Financial Constraints, Governance, and International Tax Policy (by Dhammika Dharmapala, C. Fritz Foley and Kristin J. Forbes, National Bureau of Economic Research) (pdf)