–House Majority Leader Again Makes Case For Repatriation Bill
–Top Republican On Senate Finance Panel Also Supports Repatriation
–Despite Lobby Blitz Many On Hill View Legislation Skeptically
–Key Congressional Study Says Little Evidence ’04 Law Boosted Jobs

By John Shaw

WASHINGTON (MNI) – Despite an aggressive lobbying blitz that
appears to have generated far more buzz in Silicon Valley and New York
than its intended targets on Capitol Hill, business groups are still
championing legislation to give companies a “one time” tax holiday.

The idea is to temporarily reduce tax rates on repatriated earnings
for corporations from the regular corporate rate of 35% to 5.25%.

This tax holiday, proponents argue, would induce companies to send
hundreds of billions of dollars back to the U.S. for investment and
potentially job creation.

House Majority Leader Eric Cantor has supported repatriation
legislation in the past and repeated his support for it again Monday in
a speech at the Hoover Institute.

Cantor called for an aggressive effort for corporate tax reform,
with a goal of reducing the corporate rate to at least 25%.

“Forging consensus on this type of fundamental tax reform will take
time, so in the meantime I propose that we allow U.S. multinational
companies to bring back almost $1.2 trillion in overseas profits at a
lower tax so they invest in our economy here at home,” he said.

Rep. Brian Bilbray, a Republican from California, has introduced
repatriation legislation this year. And Sen. Orrin Hatch, the ranking
Republican on the Senate Finance Committee, is a strong supporter of
repatriation legislation.

But advocates of the tax holiday face a tough road ahead.

Treasury Secretary Tim Geithner said earlier this year that it
makes far more sense for Congress to concentrate on achieving broad
corporate tax reform rather than a one time tax holiday.

Geithner told the Senate Finance Committee that the Obama
administration would not support repatriation legislation “outside the
context” of comprehensive corporate tax reform.

Geithner said the “best thing” for Congress was to work on
“comprehensive corporate tax reform” which lowers corporate rates and
broadens the tax base.

When pressed on the idea of stand-alone repatriation legislation,
Geithner said the administration would be “happy to consider it,” but
only as part of a comprehensive tax package.

In 2009, the Senate rejected a repatriation amendment that would
have allowed multinational corporations a one-time tax break to bring
earnings from foreign subsidiaries back to the U.S.

Under the proposal by Democratic senator Barbara Boxer and
Republican senator John Ensign, the tax rate for companies bringing
foreign subsidiary earnings back to the U.S. would have been slashed
from the current rate of 35% to 5%.

Boxer and Ensign argued their proposal would bring hundreds of
billions of dollars back into the U.S. economy — where they could be
used to create jobs. Ensign said some believed that the repatriation
provision would bring up to $500 billion into the U.S.

Boxer and Ensign said the change was made in 2004 and huge sums of
capital returned to the U.S. “The money came home,” Boxer said.

But Senate Finance Committee Chairman Max Baucus and several other
critics of the proposal said that little, if any, of the capital that
returned to the U.S. after passage of the 2004 law was used by firms to
create jobs.

Baucus said there was “ample documentation” this proposal did not
spur job growth in 2004. “They didn’t use it for new jobs,” he said.

Baucus also said that a study of the proposal by the Congressional
Joint Tax Committee estimated the Boxer-Ensign amendment would cost the
Treasury nearly $30 billion over 10 years.

“This is a tax gift,” Democratic senator Carl Levin said, in
criticism of the amendment. Levin said companies would be rewarded for
“holding money overseas” until the tax rate was slashed.

“It rewards exactly the wrong thing,” Levin said.

This year’s effort to pass repatriation legislation is, at minimum,
complicated by the 2004 experience. While there are a raft of studies on
the effect of the 2004 law, most conclude that the law did induce
hundreds of billions of dollars back into the U.S., but relatively
little of the capital was used to create jobs.

In a December, 2010 report, the Congressional Research Service
studied the massive literature on the 2004 law and said the
preponderance of evidence showed it did not achieve its job creation
objectives.

“The studies generally conclude that the reduction in the tax rate
on repatriated earnings led to a sharp increase in the level of
repatriated earnings, but that the repatriations did not increase
domestic investment or employment. They further conclude that much of
the repatriations were returned to shareholders through stock
repurchases,” the CRS study said.

** Market News International Washington Bureau: (202) 371-2121 **

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