Don't celebrate this tax 'holiday'

Giving corporations incentive to bring home billions stashed overseas will lead to more hidden cash, higher deficits

November 02, 2011|By Carly Mercer

Should corporations get a massive tax discount for bringing the $1.4 trillion they've stashed in overseas tax havens back to America?

An army of corporate lobbyists certainly think so. They are asking Congress for a tax holiday allowing corporations to pay just a 5 percent to 8 percent tax rate on profits they've kept offshore instead of the normal 35 percent. That's a lucrative reward for companies that have shirked their tax responsibility.

Sadly, it's happened before. Congress last gave corporate America a "repatriation holiday" in 2004. Despite promises of job creation, the firms that benefited most from the tax holiday actually shed jobs, bought their own stock to boost the price, and increased executive pay. Eagerly anticipating the next holiday, they then shifted even more profits offshore. Small businesses and ordinary taxpayers were left to foot the bill.

More than 80 of America's largest 100 publicly traded companies make use of tax havens, which all told cost American taxpayers $100 billion a year in lost revenue. Some of these offshore subsidiaries are nothing more than PO boxes. In fact, 18,857 "corporate headquarters" are registered at a single address in the Cayman Islands.

Here in Maryland, to make up for tax dodgers, the rest of the state's individual tax filers had to pay more than $2.1 billion in 2010, according to a study done by Maryland Public Interest Research Group (Maryland PIRG). That breaks down to each taxpayer paying on average an extra $472. If a corporation benefits from American education, infrastructure, and national security, it should pay the taxes it owes to America.

The vast majority of U.S. corporations — the small businesses that can't hire aggressive tax attorneys — would not benefit at all from a tax repatriation holiday. A study recently released by the Senate Permanent Subcommittee on Investigations found that just 0.015 percent of American corporations could take advantage of the holiday in 2004. Pharmaceutical and high-tech giants accounted for nearly half of the returned funds.

While a tax holiday for tax dodgers is wrong on principle, research shows that it also doesn't help the economy. The Senate study found that the 15 companies that brought back the most money in 2004 actually shed nearly 21,000 jobs. The companies didn't use the extra cash to invest in research and development either. So where did the money go? According to the study, these same top firms markedly increased stock buy-backs and upped executive pay by nearly 60 percent in the two years following the tax holiday.

One of the strangest things about the renewed push for a tax amnesty is that the army of at least 160 corporate lobbyists fighting for it is pressuring the supercommittee, which is charged with cutting the deficit, to include it in its recommendations. Although the tax holiday would bring in a few quick bucks at first, the nonpartisan Joint Committee on Taxation found that it would add at least $42 billion and as much as $78.7 billion (depending on the discounted tax rate) to the deficit over the next 10 years.

On top of that, the only clear effect the last corporate tax holiday had on the economy was to encourage companies to shift even more of their profits offshore, costing taxpayers more money in the long run. According to a study by the Congressional Research Service, the nonpartisan research arm of Congress, firms that took most advantage of the tax amnesty last time have increased the amount of cash stashed offshore by 81 percent. It's clear what lesson they learned. Another tax holiday would be a nod to multinationals to shift ever more profits offshore, knowing that the next sweetheart tax deal from Congress will always be just around the corner.

Another tax holiday is nothing more than a giant giveaway to the wealthiest American corporations. It would encourage companies to engage in continued tax-dodging behavior and force small businesses and individual taxpayers to pick up the tab of the extra tax burden. Congress must protect American taxpayers and not cave in to corporate demands.

Carly Mercer is a program associate with the Maryland Public Interest Research Group (Maryland PIRG).

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