The U.S. economy would expand by as much as 4 percent over two to three years if lawmakers agree to a repatriation tax holiday backed by Apple Inc. (AAPL), Google Inc. (GOOG) and Pfizer Inc. (PFE), according to the U.S. Chamber of Commerce.
A tax holiday would allow companies to return as much as $1 trillion in cash that is parked overseas to the U.S. at a lower rate than the current 35 percent statutory rate. Businesses could use that money to create about 2.9 million jobs, according to a study the Chamber of Commerce released today. It was written by Douglas Holtz-Eakin, a former director of the Congressional Budget Office and an economic adviser to Republican Senator John McCain’s 2008 presidential campaign.
“Repatriation can be thought of as a private-sector approach to stimulus,” Holtz-Eakin wrote in the study.
The study is an attempt by the business community to build momentum behind a repatriation holiday. While maintaining that jobs will be created by allowing businesses to bring home overseas cash, the study encourages lawmakers to consider the broader effects of a repatriation proposal.
A similar tax holiday in 2004 has been criticized by congressional Democrats for allowing companies to use repatriated cash for share buybacks or dividend payments instead of job creation. Holtz-Eakin said those actions still support the U.S. economy.
“The ultimate test is not the decisions made by individual firms but rather the overall impact on investment, growth and jobs,” Holtz-Eakin wrote.
He told reporters that job growth wouldn’t happen immediately after a repatriation holiday.
“I don’t think you’d expect this to happen in a quarter or two quarters,” he said. “You have to evaluate it over the course of eight to 12 quarters.”
The corporate push for a repatriation holiday will stir concerns among congressional Democrats about how the cash will be deployed. Senator Carl Levin, a Michigan Democrat who is chairman of the Homeland Security and Governmental Affairs Committee’s permanent subcommittee on investigations, sent surveys to DuPont Co. and Cisco Systems Inc. (CSCO) in June asking how they would use repatriated funds.
Cisco, whose chief executive, John Chambers, has been vocal in supporting a repatriation holiday, said in July that it plans to eliminate 6,500 jobs worldwide.
Representative Kevin Brady, a Texas Republican who serves on the tax-writing Ways and Means Committee, in May introduced legislation that would call for an immediate tax holiday allowing companies to repatriate overseas profits at a 5.25 percent rate. The Chamber of Commerce study stops short of calling for an immediate holiday and said repatriation should be part of a broader shift to a territorial tax system, in which the U.S. would levy taxes only on income generated domestically.
“To avoid any possible incentive to hold cash abroad in anticipation of a future holiday, and to have a bigger impact, a repatriation holiday should be done in the context of transitioning to a territorial system entirely,” the study said.
The study highlighted concern that higher taxes in the U.S. will encourage cross-border mergers that locate the new parent company in a country with lower taxes. It noted the 2008 purchase of St. Louis-based Anheuser-Busch by Leuven, Belgium- based InBev NV.
“InBev’s purchase of Anheuser-Busch has no impact on Anheuser-Busch’s historic foreign earnings repatriation policy,” Jeff Comotto, the vice president of taxes at Anheuser-Busch, said in an e-mailed statement today.
The U.S. Chamber of Commerce is Washington’s largest business lobbying group.
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