Let's not open the door to corporate tax-dodging
By Renee Loth
THERE’S A LOT of genteel blackmail being practiced in Washington these days. Republicans won’t agree to raise the debt ceiling until they exact profound cuts in government programs. Opponents won’t confirm Elizabeth Warren to the new Consumer Financial Protection Bureau without major changes in the Dodd-Frank law that Congress already approved. And now, multinational corporations are demanding a colossal tax break before they’ll “repatriate’’ billions in profits they have been hoarding overseas.
A select alliance of America’s largest companies — Cisco, Pfizer, Qualcomm, and Google, to name a few — has been pressing for a bill that would temporarily slash the federal corporate income tax on offshore profits from 35 percent to 5.25 percent — a break of 85 percent. The tax holiday would ostensibly provide an incentive to return to the US Treasury between $750 billion and $1 trillion in overseas profits the companies have been sitting on.
The last time Washington passed a repatriation holiday, in 2004, it didn’t result in a surge of new jobs. In fact, according to the Congressional Research Service, many of the companies that took advantage of the tax break slashed jobs soon after. Pfizer repatriated around $37 billion in profits only to close factories and eliminate 10,000 American jobs. Hewlett-Packard announced plans to cut 14,000 jobs while it repatriated $14.5 billion.
So where did the money go? Studies by the nonpartisan National Bureau of Economic Research and others found that much of the returned cash went to increases in shareholder dividends, stock buybacks, and corporate bonuses. There’s no reason to believe the companies would behave any differently this time.
The seductively titled American Job Creation Act of 2004 simply applied the profits to projects already on the books and freed up cash to lavish on executives and shareholders.
Unfortunately, both parties in Washington are so desperate to do something that appears to goose the economy that Congress might actually approve this manifestly bad idea.
Rather than pay the ransom the corporations are demanding for the return of American tax revenues, Washington should take a cue from Massachusetts. In 2008 the Legislature passed a law that greatly limited the ability of corporations to shift income to low-tax havens, whether in other states or overseas. Companies can no longer bury profits in the tax code. And by contributing a fair share to state revenues, they get the benefits of a top education system, cutting-edge research, a functioning infrastructure, and a high quality of life. Right here at home.
