Proposed Solution to Shore up the Highway Trust Fund is a ‘Retread’ of the
Same Failed Tax Giveaway of a Decade Ago
WASHINGTON – Frank Clemente, executive director of Americans for Tax Fairness, issued the following statement today about a proposal from Senators Barbara Boxer (D-CA) and Rand Paul (R-KY) that would create a “repatriation tax holiday,” which would allow multinational corporations to bring up to $2 trillion in untaxed offshore profits to America at a 6.5 percent tax rate and use the proceeds to shore up the Highway Trust Fund. The proposed legislation is very similar to legislation enacted in 2004, as part of the American Jobs Creation Act (P.L. 108-357), which set a 5.25 percent tax rate on untaxed offshore profits brought to America.
“The proposal from Senators Boxer and Paul appears to be the same failed tax giveaway that occurred a decade ago. It should be called the ‘Retread Act of 2015.’ Their plan would put a new tread on a failed tax loophole bill from the past. But it’s nothing but a flat tire for American families and small businesses.
“American taxpayers and Main Street businesses should not have to pick up the tab for the taxes owed by some of America’s richest companies – such as Apple, General Electric, Microsoft, Pfizer, Merck, IBM – that have the most untaxed profits sitting offshore. And our tax system should not be encouraging corporations to shift jobs or profits offshore, as this proposal would do. Untaxed offshore corporate profits have grown by 250 percent since the 2004 repatriation holiday in anticipation of this legislation.
“It is not clear how this plan raises revenue to rebuild our infrastructure. A repatriation tax holiday at a 5.25 percent tax rate will raise $20 billion in the first two years but lose nearly $100 billion over 10 years, according to the Joint Committee on Taxation.
“Numerous studies have harshly criticized the 2004 repatriation tax holiday. It gave huge tax breaks to the worst tax dodgers – those companies that stash the most profits in offshore tax havens. It did not increase U.S. jobs and economic growth. Instead, it cost jobs and gave a windfall to wealthy shareholders and bigger bonuses to corporate executives. The measure is not even necessary, as most untaxed offshore corporate profits are actually invested in U.S. financial assets and institutions.
Below are findings about the tax giveaway in the 2004 repatriation holiday from the U.S. Senate Permanent Subcommittee on Investigations in a Majority Staff report entitled Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals
The Report makes the following findings of fact.
- U.S. Jobs Lost Rather Than Gained. After repatriating over $150 billion under the 2004 American Jobs Creation Act (AJCA), the top 15 repatriating corporations reduced their overall U.S. workforce by 20,931 jobs, while broad-based studies of all 840 repatriating corporations found no evidence that repatriated funds increased overall U.S. employment.
- Research and Development Expenditures Did Not Accelerate. After repatriating over $150 billion, the 15 top repatriating corporations showed slight decreases in the pace of their U.S. research and development expenditures, while broad-based studies of all 840 repatriating corporations found no evidence that repatriation funds increased overall U.S. research and development outlays.
- Stock Repurchases Increased After Repatriation. Despite a prohibition on using repatriated funds for stock repurchases, the top 15 repatriating corporations accelerated their spending on stock buybacks after repatriation, increasing them 16% from 2004 to 2005, and 38% from 2005 to 2006, while a broad-based study of all 840 repatriating corporations estimated that each extra dollar of repatriated cash was associated with an increase of between 60 and 92 cents in payouts to shareholders.
- Executive Compensation Increased After Repatriation. Despite a prohibition on using repatriated funds for executive compensation, after repatriating over $150 billion, annual compensation for the top five executives at the top 15 repatriating corporations jumped 27% from 2004 to 2005, and another 30%, from 2005 to 2006, with ten of the corporations issuing restricted stock awards of $1 million or more to senior executives.
- Only a Narrow Sector of Multinationals Benefited. Repatriation primarily benefited a narrow slice of the American economy, returning about $140 billion in repatriated dollars to multinational corporations in the pharmaceutical and technology industries, while providing no benefit to domestic firms that chose not to engage in offshore operations or investments.
- Most Repatriated Funds Flowed from Tax Havens. Funds were repatriated primarily from low tax or tax haven jurisdictions; seven of the surveyed corporations repatriated between 90% and 100% of their funds from tax havens.
- Offshore Funds Increased After 2004 Repatriation. Since the 2004 AJCA repatriation, the corporations that repatriated substantial sums have built up their offshore funds at a greater rate than before the AJCA, evidence that repatriation has encouraged the shifting of more corporate dollars and investments offshore.
- More than $2 Trillion in Cash Assets Now Held by U.S. Corporations. In 2011, U.S. corporations have record domestic cash assets of around $2 trillion, indicating that that the availability of cash is not constraining hiring or domestic investment decisions and that allowing corporations to repatriate more cash would be an ineffective way to spur new jobs.
- Repatriation is a Failed Tax Policy. The 2004 repatriation cost the U.S. Treasury an estimated net revenue loss of $3.3 billion over ten years, produced no appreciable increase in U.S. jobs or research investments, and led to U.S. corporations directing more funds offshore.
Americans for Tax Fairness is a diverse coalition of 425 national and state organizations that collectively represent tens of millions of members. The organization was formed on the belief that the country needs comprehensive, progressive tax reform that results in greater revenue to meet our growing needs. ATF is playing a central role in Washington and in the states on federal tax-reform issues.