Friday, July 1, 2011

Democrats Crafting Fresh Repatriation Bills Aimed at Job Creation

By Heather M. Rothman and Brett Ferguson

Additional ideas to allow U.S. multinational companies to repatriate more than $1 trillion in overseas profits are emerging, with Democrats trying to forge consensus on legislation that would encourage hiring rather than punish companies for eliminating workers.

According to industry sources, lawmakers, and congressional staffers, Rep. Adam Smith (D-Wash.) and Sen. Kay Hagan (D-N.C.) are looking at alternatives to existing repatriation ideas—particularly one from Rep. Kevin Brady (R-Texas)—that would fine companies for taking a preferential tax rate and then contract its workforce.

“I am currently exploring ways to encourage job creation and investment in the American worker at home when corporate profits are returned to our shores,” Smith told BNA. “I am looking at past legislation and listening to the ongoing debate on this issue to see if it is possible to strengthen the hiring component before moving forward with any legislative concept.”

Likewise, Hagan recently appeared at a pro-repatriation event sponsored by the think tank Third Way, and said “a repatriation holiday can encourage economic activity at a fraction of cost of recent fiscal policy.”

Hagan, a banker prior to entering politics, said a holiday would be “good public policy.”

Details Not Finalized

Staff to Smith and Hagan were clear that the lawmakers' ideas for repatriation holidays are in the nascent stages and that legislative language is not forthcoming.

But sources familiar with them said they could create a two-tiered reduced corporate tax holiday that would begin with the top 35 percent corporate tax rate and drop to as low as 5.25 percent if they increased their employment figures above a certain average. The proposals could also provide a straight 8.75 percent or 10 percent rate if companies did not boost their employment figures.

Those potential proposals are in contrast to one (H.R. 1834) offered by Brady, a senior member of the House Ways and Means Committee, that would offer companies a 5.25 percent maximum rate on earnings above what the company brings back on average. There would not be any restrictions on how the money had to be used.

However, it would impose a fine of $25,000 per worker and would be imposed if a company reduces its average employment level in the two years after taking advantage of the repatriation holiday.

The two-tiered system, Brady said, is really a difference between carrots and sticks. “I think we tried to make it really clear this is all about new investment and new jobs,” Brady said. “Smith and Hagan are looking at it if you can get to the same goal with carrots.”

Brady said his plan is the “right approach” but added that “in a Congress with shared power there is going to have to be discussion.”
Planning How to Move Forward

Plans for repatriation have been stalled in part due to a lack of enthusiasm by Democrats, who feel burned by the last repatriation and say it did not boost domestic investment or jobs and instead cost taxpayers billions of dollars.

According to a Dec. 17, 2010, report from the Congressional Research Service, the temporary reduction of the tax rate for repatriated earnings—which cut the tax rate from 35 percent to 5.25 percent—led to as much as 91 cents of every dollar repatriated being used by companies to repurchase their own shares of stock. Lawmaker anger peaked after disclosures that four of those companies cut tens of thousands of jobs in the two years during the same period that they had repatriated $88 billion.

House Ways and Means Chairman Dave Camp (R-Mich.) said June 21 that he does not support the idea of a one-time repatriation holiday and would prefer to keep the focus on a long-term overhaul of the entire tax code.

“I don't think we should fix it for just one time,” Camp said, though he refused to rule out a repatriation bill as a legislative possibility this year. After years in Congress, Camp said he has learned “you can't say anything won't happen with certainty.”

On the Senate side, Finance Chairman Max Baucus (D-Mont.) said the mere suggestion of a repatriation holiday puts lawmakers on guard.

“Getting repatriation done is pretty dicey," Baucus told BNA in May.

The complete text of this article can be found in the BNA Daily Tax Report, June 27, 2011.

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