Have you heard about the "tax holiday" idea? The idea is to let corporations bring overseas profits back to the United States at a very low tax rate. These overseas profits were made in various ways, including schemes to move factories and jobs out of the country in order to avoid paying taxes here. With a "tax holiday" they would ... well ... get to bring that money back and pay even less in taxes, rewarding them for the offshoring and tax dodging. We did this in 2004 and it cost the country a lot of jobs but made the rich even richer. So of course they want to do it again.
This is a test of our Congress. Will they continue to do the bidding of the top 1% and reward offshoring and tax dodging, even as more and more people are in the streets demanding they instead start doing the bidding of the 99%.
What Is A Tax Holiday?
Companies that report profits outside of the US don't have to pay taxes on that money unless they bring it into the US. This encourages some companies to engage in various schemes that close factories and lay off workers here in order to report profits outside of the country. They use shell companies, foreign subsidiaries, post office boxes in tax havens as "headquarters," etc. Other companies make a lot of money by making great stuff and selling it or providing great services. This money builds up and naturally owners want to bring it back here so they can live it up even more than they do. They could just bring it back and pay taxes (some do) but some are asking Congress to give them a "repatriation tax holiday," letting them bring the money back ("repatriate" it) at a much, much lower tax rate than they would usually have to pay.
Of course, we are in a jobs emergency so they claim that giving even more money to those top 1% "job creators" is a good thing because it will "create jobs." If we were in a green cheese emergency they, of course, would call them selves the "green cheese creators" and say that giving them this huge holiday gift would "create green cheese."
They Tried It Before -- FAIL
In 2004 Congress passed a tax holiday bill named the "American Job Creation Act of 2004." The big multinationals promised that they wiould use the money to "create jobs." (Have we heard that somewhere before?)
The Institute for Policy Studies looked at the results of the 2004 tax holiday and found that "their holiday didn't just fail to create the promised jobs. Their holiday enriched corporations that actually destroyed jobs in the months right after they received their tax windfall." IPS found that 58 multinationals who used the "American Job Creation Act of 2004" tax holiday not only immediately laid off tens of thousands, they continued laying off, and laid off close to 600,000 workers between 2004 and now. From the IPS summary of the study,
One government study looking at the first two years after the repatriation windfall found that 12 of the top recipients laid off more than 67,000 American workers. These firms collectively brought back home more than $100 billion ...
The companies that gained the most from the tax holiday actually cut jobs, on top of that they used the tax gift money to buy back their own stock, increasing its value, and pay out dividends, both thereby enriching executives and shareholders.
Why Is This Even Being Discussed?
Why is such a bad idea even being discussed today, not to mention in a bill entertained by Congress? Well, why else? Nation of Change reprints iWatch's definitive tax-holiday post by Aaron Mehta and John Aloysius Farrell, Wealthy Corporations With a Trillion Dollars Stashed Offshore Lobby For a 'Holiday' From U.S. Taxes, and in it we find the (usual) answer,
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.
[. . .] 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.
Millions of dollars lobbying... says it all.
Where Are We Now?
There is plenty of opposition being voiced. A strong New York Times editorial, No Holiday, make the case against this holiday gift,
Big business has clearly decided that the economic crisis is too important to waste. While Washington debates how to create jobs and cut the budget deficit, major corporations — read major campaign contributors — are pushing Congress for an enormous tax cut on corporate profits. Lawmakers seem all too eager to grant their wish.
[. . .] These days, corporations are flush with $2 trillion in cash that is not being used for hiring. As long as the economy is weak and consumers aren’t spending, tax cuts will add to the cash pile, not create jobs. A tax holiday also would add to the deficit, in part because companies rush to bring money home, rather than repatriating the earnings over time at the usual rate.
At the Center on Budget and Policy Priorities blog, Chuck Marr writes in, Corporate Tax Holiday Would Be a Costly Mistake,
A well-funded corporate lobbying campaign is pushing Congress to allow multinational corporations to bring profits held overseas back to the United States at a temporary, bargain-basement tax rate.
...Congress tried this in 2004 and it proved an embarrassing failure. Firms not only failed to use the “repatriated” funds to boost their U.S. investment and hiring, many of them actually laid off thousands of U.S. workers.
Marr also writes that this tax holiday, following the 2004 holiday, would make tax holidays an expectation, and that,
... large revenue losses in later years would more than wipe out those gains as corporations shift more investments, profits, and jobs overseas in anticipation of yet another temporary holiday.
Yes, anticipation of the next tax holiday. And the one after that.
Even .. Heritage???
In a shocker of shockers, Heritage Foundation agrees. (The check from the multinationals mush have gotten lost in the mail!) WSJ: Heritage: Repatriation Tax Holiday Wouldn’t Create Jobs,
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 including Google 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.
Here are Jared Bernstein and Chuck Marr discussing whether Congress should give this holiday gift to the top 1% and their giant multinationals: