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Wealthy Corporations with a Trillion Dollars Stashed Offshore Lobby for a ‘Holiday’ from U.S. Taxes

Aaron Mehta and John Aloysius Farrell
iwatch news / News Report
Published: Monday 24 October 2011
“Rich corporations with money offshore want a tax holiday; Sen. Carl Levin says, ‘I want them to pay their taxes like the rest of us’”
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Goaded by battalions of corporate lobbyists, members of Congress are working to give a select group of U.S. multinational firms like Apple, Oracle and Pfizer a lavish tax break on a trillion dollars stashed offshore.

The avowed goal is to generate jobs and investment, but the offshore tax holiday was tried before, in 2004, and the lion’s share of the benefits went not to unemployed workers and their families, but to corporate shareholders and executives.

With today’s high unemployment, and soaring costs for college, health care and other family essentials, critics are asking why an elite class of corporations and their shareholders should get a huge tax break on overseas profits.

The proposed tax holiday could cost the Treasury from $40 billion to $80 billion over the next decade, and the high cost of the measure is one reason that its prospects for passage are mixed.

But 73 members of Congress, both Republicans and Democrats, have signed up as co-sponsors. And cash-rich mega corporations are pushing hard for the tax break.

A number of trade groups and corporations that would benefit have joined in a coalition called WIN America . New lobbying disclosure reports show that the group and its member firms have spent millions of dollars, and employed dozens of lobbyists, to press for the tax break, according to an analysis.

The current rules for tax repatriation, as the process is called, are a thorn for U.S. firms that make money overseas. American companies face a 35 percent corporate income tax. Money earned offshore is taxed only by the country of origin until it is “repatriated” to the U.S., at which time an additional tax is levied to make up any difference and bring the rate to 35 percent.

The 2004 holiday allowed U.S. firms to bring their offshore profits back and pay a rate of only 5.25 percent.

“The repatriation tax break created a competitive disadvantage for domestic businesses that chose not to engage in offshore operations or investments and provided a windfall for multinationals in a few industries without benefiting the U.S. economy as a whole,” said the Democratic staff of the Senate Permanent Subcommittee on Investigations, in its Oct. 11, 2011 report, done in response to the new push for another tax holiday.

“I want them to pay their taxes like the rest of us,” said Sen. Carl Levin, the Democrat from Michigan whose committee compiled the report. Michigan’s unemployment remains among the highest in the country. “The rest of us don’t get a tax holiday.”

Benefitting the Few

There are 27 million businesses in America, and almost 10,000 have foreign subsidiaries and could qualify for the tax break. Yet only 843 of these firms took advantage of the bargain tax rates set by the 2004 law, the IRS says.

Those 843 companies brought around $362 billion home from overseas. More than half the benefits went to only 15 firms. And just five — Pfizer, Merck, Hewlett-Packard, Johnson & Johnson and IBM — retrieved $88 billion, a fourth of the funds returned.

Two sectors profited disproportionately. Drug companies brought home some 29 percent of the repatriated funds; the computer and electronics industry another 19 percent, according to an IRS analysis.

The holiday also rewarded those who were using offshore funds to dodge taxes in the first place. Among the firms most likely to participate in the tax holiday were many that regularly stash their earnings in tax havens. The countries of incorporation with the largest percentage of repatriated funds under the 2004 law included the Netherlands, Switzerland, Bermuda, Ireland, Luxembourg and the Cayman Islands.

In many cases, the money was moved through shell companies, often just mailbox drops, that had no employees or physical assets.

Intel and Coca-Cola, the Senate inquiry determined, used shell companies in the Cayman Islands. Proctor & Gamble used a holding company in Bermuda that had no physical office and no full-time employees. Eli Lilly used Switzerland and the British Virgin Islands. Oracle employed an Irish subsidiary.

Many firms used the “repatriated” money, as it is known, to launch stock buy-back efforts, boosting the value of their shares and — via stock awards to senior managers — hiking executive compensation rather than investing the money in new jobs or research and development, as the bill intended.

Because of the law’s lax safeguards, firms that took advantage of the tax break in 2004 “did not … significantly increase employment or research and development,” said Dhammika Dharmapala , an expert on tax policy, and one of the authors of a National Bureau of Economic Research (NBER) study of the 2004 holiday.

Then, as now, the bill’s proponents insisted that they had included safeguards to guarantee that the benefits of the tax break would be used to create jobs and spur investment. But in the 2004 law, these measures were easily dodged.

The language of the law expressly forbade companies from using repatriated funds for stock buybacks or executive compensation. But that did nothing to keep companies from doing so. “Estimates imply that firms returned almost all of the repatriated cash to shareholders — a use that was explicitly not permitted,” the NBER study concluded. The NBER is a nonpartisan organization whose ranks of current and former members are salted with Nobel Prize-winning economists.

The NBER study of all companies that cashed in on the holiday calculated that 60 percent to 92 percent of the money repatriated was used for payouts to shareholders.

“Stock repurchases and executive compensation climbed at the largest repatriating corporations, while hiring stagnated or declined,” according to the Senate committee’s study of 15 leading firms that profited from the tax break.

Drug giant Pfizer, which repatriated the single largest chunk of cash — $37 billion — announced that it was laying off thousands of employees in 2005. Yet from 2004 through 2006, according to the Senate inquiry, Pfizer repurchased over $17 billion of its stock, and awarded its five most highly compensated executives with shares worth $30 million.

“If you’re looking for straight up, direct job creation, the evidence isn’t there,” says Michael Mundaca, until this summer the Assistant Treasury Secretary for Tax Policy in the Obama administration.

Lobbying Hard

The financial return for lobbying in the 2004 debate was indicative of why firms have once more embraced the goal. According to one University of Kansas study, companies reaped $220 in tax benefits for every $1 spent on lobbying — a 22,000% return.

WIN spent the first 9 months of this year actively lobbying for a repatriation bill in Congress. It spent $380,000 to hire two firms (Cauthen Forbes & Williams and Capitol Counsel LLC) and target lawmakers with a total of eight lobbyists. Among the lobbyists hired directly by WIN are several people with strong ties to Congress:

  • Jim McCrery, a former Congressman who represented Louisiana’s 4 th district until 2009.
  • Drew Goesl, who served as chief of staff for Rep. Mike Ross and communications director for Sen. Blanche Lincoln; Ross is a co-sponsor of the House bill.
  • Tucker Shumack, a former legislative assistant for Sen. John Isakson, a co-sponsor of the Senate bill.
  • Dena Battle, a former legislative director for Rep. Dave Camp, who as head of the powerful Ways and Means Committee has sway over tax policy in the U.S.
  • Jeff Forbes, a former staff director on the Senate Finance Committee.
  • Libby Greer, a former chief of staff for former Rep. Allen Boyd.

All told, 58 organizations and companies listed “repatriation” on their disclosure forms as an issue they were lobbying on through the first nine months of 2011. While these companies spent at least $71.2 million on lobbying during this period, due to the way lobbying is disclosed it is impossible to tell exactly how much was spent on what issue. If these groups spent a conservative estimate of 10 percent of their money on this issue, that would still be over $7 million. And it is likely to be more — companies and organizations could be lobbying on the issue but simply list it as “taxes” or “funds”.

WIN affiliated companies such as Pfizer ($7,340,000 overall), Qualcomm ($3,880,000 overall), Microsoft ($3,592,000 overall), Apple ($1,350,000 overall) and Oracle ($1,150,000 overall), among others, spent at least some money to lobby the issue. 

The 2004 tax break was advertised and sold as a one-time deal, but the affected firms correctly perceived that after a few years had passed they could demand another round of relief, and they have stockpiled hundreds of billions of dollars overseas in anticipation of the next holiday.

While he doesn’t expect any of the bills to pass, citing the need for Congress to find offsets for the $40 billion to $80 billion it would initially cost, Mundaca sees serious dangers in having the repatriation holiday. “I think a holiday every few years is unsustainable,” he said.

“You can’t have an important part of your tax system subject to the whims of the legislative process. I think there needs to be a decision whether this is a good idea or not, for all time, not whether it’s a good idea once every five years.”

New Proposals for Congress

There are now several tax holiday proposals, embraced by both Democrats and Republicans. The Foreign Earnings Reinvestment Act , for example, is sponsored by Democratic Sen. Kay Hagan of North Carolina and Republican Sen. John McCain of Arizona. It would reduce the tax on repatriated earnings to 5.25 or 8.75 percent, depending on the size of a firm’s payroll.

Under the Hagan-McCain bill, firms that add workers would be rewarded and those that exploit the holiday and then lay off workers would be penalized — a new wrinkle designed to meet the criticism that several big firms which took advantage of the 2004 holiday proceeded to cut, rather than expand, their work force.

Still, the tax holiday’s defenders hail its potential as a new stimulus act.

Economist Douglas Holtz-Eakin, who headed the Congressional Budget Office for two years during the Bush administration, acknowledged in a paper for the U.S. Chamber of Commerce that the 2004 act had poor safeguards, which complicates any calculation of its effects. “There is no official report on how the repatriated earnings were actually spent,” he writes, since the law “did not require companies to trace or segregate their use of repatriated funds.”

But even if the bulk of the money was spent rewarding shareholders, a trickle-down effect should have benefited everyone, Holtz-Eakin argues. Payouts to shareholders “put resources in the hands of other economic actors — firms, households, pension plans, investors, etc. — who continue the chain of real purchases and financial transfers.”

“Thus the ultimate test is not the decisions made by individual firms,” he writes. Though “the various uses of repatriated earnings may each impact the economy differently, it’s safe to say that there is no option that does not result in some degree of stimulus.”

Mundaca says there hasn’t been a deep enough analysis of the secondary impacts of buybacks and stock purchases to rule out the possibility that those helped the economy.

In a paper for the nonpartisan New America Foundation, economist Laura D’Andrea Tyson and two Berkeley associates estimate that 74 percent of the money brought back to the U.S. in a tax holiday would be distributed to shareholders in the form of dividend payments or stock repurchases, and only 26 percent used for hiring and other corporate investments.

But for every dollar returned to a shareholder, Tyson says, from 25 to 40 cents will be used by high-income consumers to go shopping. This boost to the economy, when combined with direct hiring and investment by companies, could ultimately lead to the creation of between 1.3 million and 2.5 million jobs.

“Even if a large proportion of the repatriated cash is distributed to shareholders in the form of dividend payments or stock repurchases, there will be a significant increase in private spending and economic activity,” Tyson says.

And even the cut-rate taxes paid by firms repatriating money should yield enough short-term cash to let Congress finance other measures to stimulate the economy, like the infrastructure bank included in President Obama’s job package, Tyson notes. Democratic Sen. Charles Schumer of New York has reportedly tested Senate sentiment for a deal along those lines.

Tyson is a former chair of the White House Council of Economic Advisers under President Bill Clinton. She also serves on the board of directors of Kodak, a member of the WIN Coalition. Eric Schmidt, the executive chairman of Google, serves as chairman of the New America Foundation board, for whom Tyson and her colleagues did the study.

The tax break proposals are predominantly sponsored by Republicans, but three Democratic Senators and 10 Democrats in the House have signed on as co-sponsors of the two main bills. Among those Democrats who are supporting the bill are representatives from districts with high-tech and software industries, in states like Utah and Colorado. Reps. Zoe Lofgren and Anna Eshoo, whose districts encompass California’s Silicon Valley, and California Sen. Barbara Boxer, for example, support the bill.

“The Great American Jobs Act Caper”

In the world of tax economists, the 2004 tax holiday is notorious as “The Great American Jobs Act Caper,” as tax expert Charles Kingson christened it, in a 2005 edition of the Tax Law Review .

It “rewards those who have beaten the tax system,” Kingson wrote. The safeguards to guarantee job creation were just “political cover.”

“The Act is a caper, but not a funny one,” Kingson wrote. “Policy is a contest among taxpayers, and what Intel or GE or Pfizer does not pay, other people or their children will.”

Many companies that make products in America and sell them overseas could suffer in another tax holiday, according to the Congressional Research Service, if a tide of money stashed overseas in foreign currencies was converted to dollars. It could drive up the price of the dollar and “U.S. net exports may decline,” the CRS warned.

Repatriation is so tailored for a relative few, and more likely to help shareholders rather than workers seeking jobs, that four U.S. corporate chieftains urged the House Ways and Means committee to abandon the idea at a hearing in May. The American tax system is in dire need of a major overhaul, said the chief financial officers of the United Technology Corp., the Kimberly-Clark Corp., Zimmer Holdings Inc. and Caterpillar Inc., but tax breaks like the repatriation holiday could give tax reform a bad name. Or, as a Goldman Sachs advisory said last month, “passage of a standalone repatriation provision could reduce momentum behind broader reform.”

The proposals for a new tax holiday have been greeted with skepticism, as well, by some conservative economists who otherwise deplore high taxes.

The Heritage Foundation, in an Oct. 3, 2011, report, concluded that “this sequel to a similar 2004 holiday would, like its predecessor, have a minuscule effect on domestic investment and thus have a minuscule effect on the U.S. economy and job creation.” American companies are already awash in cash, noted Heritage scholars J.D. Foster and Curtis S. Dubay. And “for those rare instances in which outside financing is needed, interest rates remain at historic lows.”

After a thorough review of the academic literature, “I have not seen an article that says this does create jobs,” Dubay said.

The Heritage report sparked a retort from Grover Norquist at Americans for Tax Reform, another conservative group, who praised the stock buybacks and higher dividends that followed the 2004 law and asked: “What’s wrong with increasing shareholder value?”

But even Norquist conceded that “Foster and Dubay are probably correct.” American firms “already have trillions of dollars in cash sitting on their balance sheets, ready to be deployed at no additional tax cost. Even companies that don’t have this liquidity could borrow at rates approaching 0 percent after inflation,” he said. “It’s unlikely that repatriation will be just what companies have been waiting for on the margin to build that next factory or invest in that new technology. They can today, and they are not.”

Reprinted by permission from iWatch News



We could kill them if we

We could kill them if we united to boycott ALL their products! It's time to fight fire with fire!!! GOD help us!

Break them up into small

Break them up into small business and make more jobs. Dam fools are dumb as boxes of rocks and vicious as a viper. BREAK THEM UP or send them to PRISON. Do it NOW!

This is outrageous. None of

This is outrageous. None of the companies for whom the tax holiday is being tailored are suffering financially--in fact, they're highly profitable--and all of them ship jobs overseas. To claim that this financial sleight of hand is anything but a tax dodge is the height of arrogance. Shame on you Barbara Boxer and other Dems for supporting this legislation, Silicon Valley or not!

You can see this coming from

You can see this coming from a mile away. All along the article talks about the ** possible effect ** this tax break ** could have **. In fact it's another case of crooks taking it all; billions of dollars but no need to document the exact use of these funds and vapourware galore.
The real issue however is that such a tax break has a price. A social price. Forget about living a fulfilling life; at this point people are struggling to feed their kids and family and make it to the next day.
Why is Obama even CONSIDERING giving large corporations a tax break when those who make the wheel turn are facing utter poverty? If this thing goes through we should consider stopping the wheel and standing our ground!

535 Congresscritters > 11,000

535 Congresscritters > 11,000 "Lobbyist" ,"Lobbyist" budget for 2011 > US$ 3.5 BILLION ...US$ 3.5 billion divided by 535 = US$ 6,542,056.07 or >US$ 6,542,056 per Congresscritter !

Can you see the problem ?
Is this the way a democracy in meant to be ?
Is this nothing but "state sanction bribery" ?

I think Occupy Wall Street should include "term limits" for ALL elected positions as one of their "wants" .

make require build plant in

make require build plant in USA with $

Where is Fox News & Mr.

Where is Fox News & Mr. O'Rielly on this one? It seems to me that ALL media should be on this story. Collectively they have just as much power as "our Congress". Whoops! It really isn't our Congress is it now?

where is fox news and mr

where is fox news and mr o'rielly on this one?

Indeed, welcome home...with

Indeed, welcome home...with caveat that all repatriated dollars must be invested in education, infrastructure, health care; these "generous contributions" to our national welfare may then be deducted as charitable contributions.

If corporations are people,

If corporations are people, they are scoundrels and liars.

I, too would like the list of

I, too would like the list of the 73. We know they are getting kickbacks (probably not even "campaign contributions") for their support.
Do I think they're crooks? You betcha!!

Where is the list of the 73

Where is the list of the 73 members of congress who are supporting this?? I must have missed that.

If I hear one more story of

If I hear one more story of yet another tax break for corporations in order to create jobs, I shall vomit. They are NOT creating jobs. They are creating more profits for their executives and shareholders. If they are going to continue to lie to the American public, the least they can do is find a new lie. This one is getting old.

Agreed. So these studies have

Agreed. So these studies have proven that these companies did not follow the rules of the tax holiday bill of 2004. Why is no one being prosecuted or going to prison for tax fraud. Another one for the Bush haves and havemores. There is no justice for the 99%. If you cheat on taxes you go to jail, unless you can spend millions lobbying the congressional crooks. Can anyone define treason?

Corruption Rules with

Corruption Rules with protected Multinational Corporations--they own our politicians and have destroyed our Country and our economy. Many more of us will be forced out of our homes as our bank accounts deminish and we can no longer secure a safe, healthy lifestyle.

Our biggest problem is the

Our biggest problem is the right wing voter who refuses to look at such actions. To them, these complaints are all Liberal propaganda.

I see this on a daily basis here in E TX which has been a stronghold for the conservatives. Yet these conservative voters only listen to the political entertainer commentary and cling to every word that John of Orange utters as being the gospel truth.

Pfizer gets a tax break to bring money in to add jobs and ends up laying thousands off? Must have been something that Obama done that caused that to happen. Only the shareholders and execs profited from the deal? Again, there is Obama, up to his evil ways that caused that.

Couldn't possibly be corporate greed. No way. Corporations are the ones who take care of us ... well, as long as Obama and the Democrats allow them to do so.

The fact that neither Obama nor the Democrats had anything at all to do with the decisions that Pfizer made? Well, that's just beside the point.

Why do I have to read this in

Why do I have to read this in the Nation of Change? Where are all the other media outlets? If we had a decent free press we wouldn't need the #occupy protests.

Just another reason we have

Just another reason we have an #occupy movement. In the face of all the protests, these jerks are grabbing all they can.

This has been the deal from

This has been the deal from the beginning....they stashed stashed and stashed some more out of the Country, they cannot bring it back in WITHOUT paying the taxes, I say make them leave their money there...this Holiday is not for the MIDDLE CLASS ...Only for the RICH to make more money on top of their money.....I SAY NO NO NO AND NO AGAIN....

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ABOUT John Aloysius Farrell

Farrell is a prize-winning journalist and author. He spent his early career, and won a George Polk award, at The Denver Post. At The Boston Globe, he covered the first Iraq war, several presidential campaigns and served as the Globe’s White House correspondent and Washington editor, among other assignments. Farrell returned to The Denver Post in 2003 for four years as national columnist and Washington bureau chief for the newspaper and the MediaNews chain. During that time he helped lead the paper’s political coverage, and made another reporting trip to war-torn Iraq. In 2007, he left to write Clarence Darrow: Attorney for the Damned, a biography of the great American defense attorney. It will be published by Doubleday in June. In 2001, Farrell authored Tip O’Neill and the Democratic Century, a biography of the late Speaker of the House, which won the Hardeman prize for the best book on Congress. Farrell is a graduate of the University of Virginia.

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