By JOHN D. MCKINNON
The Obama administration on Wednesday rejected the idea of a tax holiday for U.S. multinationals overseas income, criticizing a plan being floated by some House Republicans and multinational companies for a stand-alone relief measure.
Treasury officials said they would only consider letting U.S. companies pay a reduced tax rate on as much as $1 trillion of profits earned overseas as part of a broader overhaul of the U.S. corporate tax code.
It would not be sensible to consider a repatriation holiday outside of that context, Assistant Secretary Michael Mundaca said in a statement published on Treasurys blog. Giving companies a temporary tax holiday on their foreign income could undercut the broader overhaul effort, Treasury officials worry. They’ve previously expressed concern about a stand-alone holiday
Backers of a tax holiday said they would keep trying. House Majority Leader Eric Cantor (R., Va.), who this week promoted the idea for a separate tax holiday, believes a broader overhaul will require a longer time and more leadership from the White House to pass, a spokeswoman said. In the meantime, [a tax holiday] is an option that can be considered immediately to spur the economy and jobs, spokeswoman Laena Fallon said.
Rep. Kevin Brady (R., Texas) is working on a repatriation bill and hopes to introduce it within a couple of weeks, a spokeswoman said Wednesday, after the Treasurys statement was posted.
The U.S. corporate tax rate, once among the world’s lowest, is now one of the highest with a top rate of 35%, though various tax breaks enable many companies to pay less than this. The U.S. also is one of the few large economies that seek to tax their companies overseas earnings.
Many U.S. companies have been parking increasingly large amounts of their overseas earnings offshore, where the money can avoid U.S. taxes until brought home. Some analysts believe that has damped investment in the U.S. and slowed job growth, at least to some degree.
More than a dozen multinationals, including Google Inc., Microsoft Corp., Cisco Systems Inc. and Pfizer Inc., recently began pushing for tax holiday legislation that would allow the money to come home at a low tax rate on a temporary basis. Congress passed a similar measure in 2004, and companies were temporarily taxed at a rate of 5.25% on the more than $300 billion in profits that were returned from offshore subsidiaries.
But some research suggests that while the holiday led companies to bring back more earnings to the U.S., the repatriations did not increase domestic investment or employment, according to a 2009 congressional report. Instead, much of the repatriations were returned to shareholders through stock repurchases. Supporters of repatriation disagree, saying many companies used some of the money for job creation and training.
Some analysts say giving companies another repatriation holiday would lead them to conclude they can win regular tax holidays in the future. That could diminish their support for a broader corporate-tax overhaul, including a permanent lowering of corporate tax rates and an easing of U.S. tax rules on overseas income. Because of these concerns, support for a separate repatriation bill doesn’t yet appear strong in the Senate.
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