Hagan’s tax holiday: not a job creator, but a sweetheart deal for lobbyist pals
The News & Observer, busy with rehabbing our buffoonish governor, is going to work to prop up our junior U.S. senator Kay Hagan, a Democrat — of course — from Greensboro:
North Carolina Sen. Kay Hagan Thursday introduced a bipartisan bill to entice U.S. corporations to bring home offshore profits at a sharply discounted tax rate — a move she said could help jump-start a stagnant economy.
At a news conference with Republican Sen. John McCain, Hagan said that offering a tax holiday — a temporary lowering of corporate taxes for offshore profits from 35 percent to 8.75 percent or lower — would encourage companies to hire more American workers.
“More than $1 trillion of American company earnings are stranded outside of America where it is not doing one bit of good for the American economy,” said Hagan, a Democrat from Greensboro. “Companies with a North Carolina presence have roughly $200 billion sitting overseas. I want that money back in America and I want it back in North Carolina.”
“Our goal,” Hagan said, “is enhanced economic growth.”
Large multinational corporations – many with a presence in the state – such as Cisco Systems, Pfizer, Apple, Microsoft and Duke Energy, have lobbied for the tax holiday. …
A U.S. Chamber of Commerce study released last month predicted the repatriation tax holiday could result in three million American jobs, could increase the U.S. gross domestic product from 1 percent to 4 percent, and result in only nominal cost to taxpayers.
What? Kay Hagan — known affectionately around DC as Chuck Schumer’s sock puppet — is calling for a cut in a tax rate? This sounds suspicious.
I turned to some folks who are true authorities on all things capitalist — The Wall Street Journal and The Heritage Foundation:
Giving U.S. companies a tax break for bringing home profits held overseas likely won’t create more jobs or spur domestic investment, an influential conservative think tank will argue in a report to be released Tuesday.
In a break from many Republican lawmakers and a host of major U.S. companies includingGoogle Inc., Apple Inc., Pfizer Inc. and Microsoft Corp., the Heritage Foundation said in a new study that a repatriation tax holiday would not motivate companies to hire new workers.
The report from the conservative think tank, often aligned with House Republicans, could slow recent momentum for a repatriation tax holiday, under which U.S. multinationals would bring home profits held abroad at a lower tax rate. Congress previously passed a repatriation tax break in 2004, billed as a one-time remedy, but lawmakers from both parties, eager to bring down the unemployment rate, have suggested repeating the effort. …
While the tax break would likely prompt companies to bring home overseas profits, those companies wouldn’t use the extra cash to hire workers, launch mergers or make other new investments they wouldn’t already undertake, argue senior fellow J.D. Foster and senior policy analyst Curtis Dubay.
The companies that would benefit from a repatriation tax holiday aren’t currently squeezed for capital, so an influx of funds won’t alone be motivation enough to create new jobs, the pair write. “The repatriation holiday would have little or no effect on investment and job creation, the key to the whole issue, simply because the repatriating companies are not capital-constrained today.”
The 2004 tax holiday prompted 843 corporations to bring back $312 billion to the U.S., according to the Internal Revenue Service. But the repatriated funds were primarily used to reward shareholders, largely through dividends and stock buybacks, according to a 2009 study published by the nonpartisan National Bureau Of Economic Research.
“In short, the companies received an unexpected tax break and the shareholders saw a shift in their portfolios. But these events did not create jobs,” the Heritage report cautions.
“If you want to cut taxes, that’s fine,” Foster said in an interview Monday, noting that Heritage supports a lower coporate tax rate. “But you’re not going to get an appreciable effect on employment with this particular tax cut.”
Other economists have backed repatriation in hopes that an uptick in corporate cash would still redirect key resources to investors, families and other companies. WinAmerica, a coalition of companies in favor of repatriation, estimates the tax break could nudge U.S. firms to bring home up to $1 trillion. That could increase gross domestic product by roughly $360 billion and create around 2.9 million new jobs over eight quarters, predicted former Congressional Budget Office director Douglas Holtz-Eakin in a paper prepared for the U.S. Chamber of Commercelast month.
But a temporary tax break doesn’t fundamentally alter companies’ long-term decisions about where to expand, Foster said. Policymakers would do better to overhaul the way U.S. companies are taxed on their profits earned overseas, putting permanent incentives in place.
Like many major companies and conservative lawmakers, Heritage advocates switching to a territorial system, where U.S. companies would largely not pay U.S. taxes on income earned abroad. Under the current worldwide system, U.S. multi-nationals often leave funds overseas in order to avoid paying U.S. taxes on them. Giving companies even a small permanent tax break on future foreign earnings would be more likely to motivate them to hire and invest in the United States, the Heritage paper urged: “The key to improving economic performance lies with future decisions, not past consequences.”
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