The top Republican tax writers in the U.S. Congress aren’t endorsing a call by Cisco Systems Inc. (CSCO), Google Inc. (GOOG) and other multinational corporations for a temporary tax break on repatriating profits held offshore.
Representative Dave Camp, the chairman of the House Ways and Means Committee, and Senator Orrin Hatch, the top Republican on the Finance Committee, said through aides yesterday that they want to consider the repatriation issue as part of a comprehensive look at rewriting the U.S. tax code.
That puts Camp, Hatch, and another Ways and Means member, Representative Patrick Tiberi, in the middle of a political fight with more than $1 trillion at stake. On one side are the companies and House Majority Leader Eric Cantor, a Virginia Republican who backs a so-called tax holiday for repatriated profits even while Congress considers a broader overhaul. On the other side is the U.S. Treasury Department, which yesterday criticized the idea, calling it a mistake that would benefit only a narrow slice of businesses.
“I want to do a lot of things,” Tiberi, an Ohio Republican who heads the Ways and Means tax-writing subcommittee, said in an interview yesterday. “I’d like to do them all now. So part of me says let’s do whatever we could do to help our economy. But it takes the pressure off, I think, getting it done in a big way.”
This week’s positioning brought fresh attention to an issue that is the focus of a corporate lobbying campaign by companies including Cisco, Duke Energy Corp. (DUK) and Apple Inc. (AAPL) The coalition’s website went live today, and 13 companies were listed as supporting the effort. They include Broadcom Corp. (BRCM), Cognizant Technology Solutions Corp. (CTSH) and EMC Corp.
Under U.S. law, companies are taxed on all of the income they earn around the world, after subtracting the taxes they pay to other governments. Companies can defer U.S. tax on overseas profits by keeping the money outside the country. U.S. companies have more than $1 trillion overseas.
Representative Kevin Brady of Texas, a senior Republican on Ways and Means, plans to introduce a bipartisan bill for a repatriation holiday in the next few weeks, his spokeswoman, Tracee Evans, said.
Cantor, the House’s second-ranking Republican, put new emphasis on the issue in a speech on March 21. As reaching consensus on a tax overhaul may be a lengthy process, he said, a repatriation tax break could spur investment in the meantime.
The Obama administration responded to Cantor and the lobbying campaign with a blog post yesterday. Michael Mundaca, assistant Treasury secretary for tax policy, said the repatriation holiday would distract from efforts to overhaul the U.S. tax code.
“Letting our eye off the ball of comprehensive tax reform in favor of a temporary measure of this kind would be a mistake,” he wrote.
Camp, a Michigan Republican, is considering the issue in the context of a tax-code rewrite, said his spokeswoman, Michelle Dimarob. Hatch, a Utah Republican, also is focused on a longer-term, comprehensive overhaul of the tax code, according to his spokeswoman, Julia Lawless.
Allowing profits to return to the U.S. removes alternatives that lawmakers may want to consider in a tax code rewrite, said David Kautter, managing director of the Kogod Tax Center at American University in Washington.
“Let’s say you have $1 trillion abroad,” he said. “Congress could say we’re going to tax 25 percent a year for four years, whether you bring it back or not. It would generate substantial revenue to keep tax reform revenue-neutral. Do you take that issue off the table?”
Congress enacted a similar holiday in 2004 with a 5.25 percent rate on repatriated funds, compared with the 35 percent top corporate rate.
“There is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions,” Mundaca wrote.
In 2009, the Senate rejected a proposal for another tax break for repatriated profits, which would have cost the government about $30 billion over a decade in forgone revenue.
The tax-holiday proposal loses revenue over 10 years for several reasons. It encourages companies to accelerate repatriations they would otherwise make in future years, and it provides an incentive to shift more profits overseas in anticipation of another such holiday.
Doug Thornell, an adviser to the corporate lobbying effort, called a repatriation break “an essential first step” in what is likely to be a long process of changing the tax code.
“There are few policy options left that will inject this amount of money into our economy and cost taxpayers next to nothing,” he said in a statement from the Working to Invest Now (WIN) America campaign.
Caroline Harris, the chief tax counsel at the U.S. Chamber of Commerce, said lawmakers could address repatriation before tackling an overhaul.
“We are supportive of repatriation,” she said. “But I think it’s sort of a Band-Aid for a hemorrhage.”
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