Issue of the week: A tax holiday for corporations

last updated 8 January 2015

Corporate America’s latest idea to get the economy going is an old one that doesn’t work, said Derek Thompson in TheAtlantic.com. Companies with billions of dollars in profits from sales made overseas are lobbying the Obama administration for a “repatriation holiday.” They want the corporate tax rate on foreign profits brought back to the U.S. to be lowered from 35 percent to 5.25 percent. Multinationals like Microsoft, Google, Apple, and Pfizer claim the measure would generate tens of billions of dollars in tax revenues, and $1 trillion in domestic investment from corporations that would otherwise keep their money parked abroad. History shows that’s “utter nonsense”: In 2005, the Bush administration enacted a similar plan, and of the $300 billion that came back to America, 92 percent went to shareholders in the form of dividends and stock buybacks. “You can’t blame corporations” for wanting to do it all over again. “You can blame politicians who fall for this trick every five years.”

Without the tax cut, though, “most of the money will remain offshore,” said James Pethokoukis in Reuters.com, doing nothing for the U.S. economy. And what’s so bad about paying it out for dividends and stock buybacks, anyway? Even if all of the cash went to shareholders, “that could still generate more consumption, growth, and jobs.” The White House and Congress should free this money “trapped overseas by punitive tax law,” said Jim Rogers, CEO of Duke Energy, in Roll Call. Otherwise, companies are left with “three bad choices”: They can bring the money home and “endure exorbitant taxes,” let it languish in foreign banks, or continue “to reinvest offshore profits offshore.” America loses any which way.

Another tax break for business is “a political stinker that faces long odds in the Senate,” said Tory Newmyer in Fortune. The Obama administration says it would back a repatriation holiday only as part of larger corporate tax reform that doesn’t hurt U.S. revenues. Corporate-minded Democrats like New York Sen. Charles Schumer may yet try to sweeten the deal by suggesting that the extra tax revenue be dedicated to job-rich infrastructure projects. I’m still not buying it, said Jon Talton in The Seattle Times. American corporations already get all the tax breaks they deserve. Thanks to “evasion schemes” devised by “huge departments whose only job is ensuring they pay as little in taxes as possible,” 55 percent of large corporations paid no federal taxes at all between 1998 and 2005. Isn’t zero percent enough of a tax break for America’s biggest companies?