Corporations with as much as $1 trillion in profits parked overseas should be allowed to bring that money to the U.S. without spending the repatriated funds on job creation, several House Democrats said.
The comments today by Democratic Representatives Loretta Sanchez of California and Jared Polis of Colorado could provide new support to a campaign for a repatriation holiday backed by companies including Google Inc., Cisco Systems Inc. and Brown-Forman Corp. House Majority Leader Eric Cantor, a Virginia Republican, has said that Congress should pass a repatriation measure before tackling a broader overhaul of the tax code.
Under U.S. tax law, multinational corporations owe taxes on income they earn from active business operations around the world. They can defer U.S. taxes on money earned outside the U.S. until they bring it home.
One of the biggest hurdles to a so-called repatriation holiday on taxation of those profits is a concern -- most prevalent among Democrats -- that companies would bring money back to the U.S. at a special low tax rate without a requirement to use the funds to reduce unemployment. Speaking today at an event sponsored by Third Way, a Washington-based Democratic policy group, Sanchez said those concerns miss the point.
“I think you should be able to spend your money how you want to use your money,” she said. “The last time in 2004 when we did this, corporations used it and bought back their stock. So what? If I was a stockholder in that company, I did well.”
In 2004, Congress passed legislation allowing U.S.-based companies to repatriate overseas profits at a 5.25 percent tax rate instead of the 35 percent statutory corporate rate.
Sanchez’s remarks don’t reflect the position of her party’s leadership in Congress or the Obama administration. Representative Sander Levin of Michigan, who is the ranking Democrat on the House Ways and Means Committee, has criticized a repatriation holiday, and Treasury Secretary Timothy Geithner has said that it should be considered only as part of a comprehensive rewrite of the tax code.
Polis said at the Third Way event that he agreed with Sanchez’s comments. He said that in reality, repatriation would be unlikely to gain Democratic support unless it includes provisions that appear to limit layoffs.
“Some of these provisions are important politically,” he said.
Polis supports legislation proposing a repatriation holiday that was introduced in May by Representative Kevin Brady, a Texas Republican and member of the Ways and Means panel, which seeks to address concerns about job creation.
Brady has said that the bill includes a “disincentive” for job cuts by including a provision that would require companies to add $25,000 to their taxable income each time they reduce their total workforce below the business’s average. With a 35 percent tax rate, the provision would increase a company’s tax bill by $8,750 for each job reduction.
Brady called on the Obama administration to support his bill.
“U.S. profits which are stranded overseas would allow American business to create much needed jobs, invest in infrastructure, and strengthen their companies,” he said today in a press release.
Speaking at the Third Way event, Jim Rogers, the president and chief executive of Duke Energy Corp., said the $1.3 billion his company would return to the U.S. in repatriated profits would help it to build its workforce. Rogers said Duke Energy would use repatriated funds to modernize its power generation fleet, which would create 15,000 to 20,000 jobs at his company and across the broader economy.
“The way I look at this, this is about jobs,” he said. “No question.”
Rogers said the amount of money the Charlotte, North Carolina-based energy company has parked overseas has increased since the repatriation holiday in 2004. He said such holidays don’t necessarily create incentives for companies to keep cash abroad in hopes that lawmakers will allow more repatriation a few years later, as opponents argue.
“I don’t think the expectation is you’re going to have a holiday every five or six years,” he said. The higher overseas profits, he said, “reflect the growth of the investment opportunities around the world. They have really been escalating during this period of time and the U.S. economy has not been growing as fast.”