Senator Schumer Gives ‘Newfound Life’ to Tax Holiday Sought by Apple
The lobbying campaign by Apple Inc. (AAPL), Pfizer Inc. (PFE) and Duke Energy Corp. (DUK) to allow companies to bring overseas profits to the U.S. at a low tax rate gained new traction after Senator Charles Schumer of New York signaled that Democrats might back the idea.
The Senate’s No. 3 Democrat said yesterday that his caucus is exploring the potential of using the short-term revenue a repatriation holiday would generate to fund an infrastructure bank. The focus on infrastructure, he said, would “guarantee” job creation and address a key line of Democratic opposition.
His comments served as a break with the Obama administration, which has said that a repatriation holiday should be considered only in the context of a broader overhaul of the tax code. The likelihood of a holiday winning congressional approval is growing, said Patrick Heck, a partner at K&L Gates LLP in Washington and a former Democratic aide to the Senate Finance Committee.
“Repatriation has sort of taken on a newfound life, and its prospects have improved,” said Heck, who specializes in federal tax policy matters. “The fact that you have a Democratic leader not opposed to repatriation is significant.”
Schumer, who sits on the tax-writing Finance Committee, was one of 48 members of the Senate Democratic caucus who opposed a repatriation holiday that was proposed in 2009. Several other Senate Democrats who voted against that measure, including John Kerry of Massachusetts and Kay Hagan of North Carolina, have also signaled that they may reconsider their position.
No Specifics Yet
There aren’t any details about how Senate Democrats would structure a repatriation holiday now. Schumer didn’t offer specifics about the infrastructure bank he envisions or the tax rate that companies would pay if they shifted as much as $1 trillion in overseas profits to the U.S. If a company were to repatriate those funds now, it would pay the statutory corporate tax rate of 35 percent on that money.
Even with Schumer’s support, a repatriation holiday must clear several hurdles. Representative Dave Camp, a Michigan Republican who is chairman of the House Ways and Means Committee, has echoed the administration’s desire to address repatriation as part of a tax overhaul.
Lawmakers might also blanch at the total cost of a holiday. The congressional Joint Committee on Taxation has said that a repatriation holiday similar to one being considered in the House of Representatives would cost $78.7 billion in forgone revenue over 10 years.
With the unemployment rate at 9.1 percent and Congress unlikely to approve any additional fiscal stimulus, lawmakers are looking at the short-term revenue gain that might come from a repatriation holiday.
Though a holiday loses money over 10 years, the Joint Committee on Taxation has said that it would generate $3.4 billion of revenue in 2011, $12.5 billion in 2012 and $9.6 billion in 2013.
That revenue would go to the infrastructure bank Schumer said Democrats are considering as a way to address criticism that a repatriation holiday approved by Congress as part of tax legislation in 2004 didn’t prevent companies that took advantage of the program from reducing their workforce.
“The opposition last time was because none of it went to jobs,” he said in a brief interview yesterday. “If we tied that money to an infrastructure bank -- but only if we tied it to an infrastructure bank or something like it -- you could be sure there would be some jobs.”
He stopped short of guaranteeing Democratic support of a repatriation holiday with ties to infrastructure development.
“That doesn’t mean it will get support yet,” he said. “It’s something people are talking about.”
‘Need for Jobs’
Kerry said a repatriation holiday that emphasizes job creation could persuade him to change his vote from 2009.
“The need for jobs and job creation and what it may take, you want to open your mind and at least examine something differently,” Kerry said in a short interview yesterday. “I’m willing to do that. I don’t know what the result of that examination will show, but I’m concerned enough about job creation to make sure that we don’t leave any stone unturned.”
Hagan said the holiday would “encourage hiring at a fraction of the cost of other fiscal policy.”
“Done right, I think a repatriation holiday could garner support on both sides of the aisle, and we cannot ignore that opportunity,” she said at a June 15 event sponsored by Third Way, a Washington-based Democratic policy group.
Representative Kevin Brady, a Texas Republican, introduced legislation in May that would allow companies to repatriate their profits at a 5.25 percent tax rate. The bill includes what he has called a “disincentive” to 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 company’s average.
With a 35 percent tax rate, the provision would increase a company’s tax bill by $8,750 for each job reduction.
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