Repatriation Tax Break From Paul, Boxer Cost $118 Billion

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A tax break for U.S. companies to repatriate offshore profits would cost the government $118 billion in revenue over a decade, a setback to efforts to use the incentive to generate money for highway spending.

The estimate from the Joint Committee on Taxation, the nonpartisan scorekeeper for Congress, will harm momentum for the proposal by Senators Barbara Boxer, a Democrat, and Rand Paul, a Republican. It’s consistent with past estimates that cast doubt on the idea that a repatriation holiday can generate money.

“JCT’s latest estimate sends a clear message: proposals for a temporary repatriation tax holiday meant to pay for highways are not financially viable over the long term,” Senate Finance Committee Chairman Orrin Hatch, a Utah Republican, said in a statement.

Federal highway programs expire May 31 and lawmakers are trying to find a way to pay for future spending on roads, either in a short-term measure or multi-year legislation.

“As the deadline for highway funding nears, we must examine all workable options, including eliminating low-priority spending, to ensure uninterrupted service to the nation’s highway programs,” Hatch said.

The Boxer-Paul proposal would let companies return money parked overseas to the U.S. on a one-time, voluntary basis at a 6.5 percent tax rate. That’s a steep discount compared with existing law.

Companies based in the U.S. owe a 35 percent tax rate on the income they earn around the world. They receive tax credits for payments to foreign governments and don’t have to pay the residual U.S. tax until they bring home the profits.

That system encourages companies to earn profits overseas and leave them there -- and that’s exactly what they’ve done, to the tune of more than $2 trillion.

Microsoft, Apple

Microsoft Corp., Apple Inc., Google Inc. and five other tech firms account for more than a fifth of the $2.1 trillion in profits that U.S. companies are holding overseas, according to a Bloomberg News review of the securities filings of 304 corporations.

Boxer said in a statement that it was an “illusion” that her bill would cost the government money and noted that it would generate revenue in the first few years. The cumulative losses don’t outweigh the gains to the Treasury until 2020.

“Recent history has shown that much of the $2 trillion in profits parked overseas will remain overseas unless we provide an incentive to bring these revenues back home,” Boxer said. “The score also fails to take into account the economic stimulus from the bill, which requires companies to spend 25 percent more on capital improvements, hiring, and research and development.”

Underlying System

The Paul-Boxer proposal wouldn’t change the underlying tax system, though it would limit companies from using repatriated profits to boost executive pay or buy back stock.

Companies that invert -- or move their tax address outside the U.S. -- within 10 years would have to repay the tax break with interest. Companies would have up to five years to bring home the profits.

The bill creates a “moral hazard,” according to the memo from Thomas Barthold, the chief of staff for the scorekeeping agency. Companies will concentrate their repatriations during the grace period and stockpile more earnings overseas in anticipation of future holidays, he wrote.