Amidst a massive campaign to convince policymakers to grant U.S. corporations a second repatriation tax holiday, allowing them to pay sharply reduced taxes on overseas profits that they bring back to the United States, Chairman Levin’s majority staff on the Senate’s Permanent Subcommittee on Investigations has issued a timely analysis of how and why the first holiday of 2004 was such a complete failure.
Levin’s staff report adds to the recent drumbeat of analyses that have warned policymakers that a second holiday will not prove any more effective than the first in creating jobs and generating investment in the United States.
“We would not expect a significant change in corporate hiring or investment plans,” Goldman Sachs wrote last week. “Another ‘one-time’ holiday may condition US multinationals to never routinely repatriate any foreign profits because, eventually, Congress can be expected to pass another ‘one-time’ tax holiday. If so, this would constitute a significant structural change in US tax policy.”
A day later, Reuters distributed a story entitled, “Fitch slams proposed U.S. foreign profit tax break,” in which the ratings firm concluded that “a temporary tax holiday for U.S. firms repatriating foreign earnings is unlikely, if passed, to support growth-oriented investment by U.S. firms.”
Now comes the Levin report. Among its findings:
“U.S. Jobs Lost Rather Than Gained. After repatriating over $150 billion under the 2004 American Jobs Creation Act (AJCA), the top 15 repatriating corporations reduced their overall U.S. workforce by 20,931 jobs.”
“Executive Compensation Increased After Repatriation. Despite a prohibition on using repatriated funds for executive compensation, after repatriating over $150 billion, annual compensation for the top five executives at the top 15 repatriating corporations jumped 27% from 2004 to 2005, and another 30%, from 2005 to 2006.”
“Most Repatriated Funds Flowed from Tax Havens. Funds were repatriated primarily from low tax or tax haven jurisdictions; seven of the surveyed corporations repatriated between 90% and 100% of their funds from tax havens.”
“Offshore Funds Increased After 2004 Repatriation. Since the 2004 AJCA repatriation, the corporations that repatriated substantial sums have built up their offshore funds at a greater rate than before the AJCA, evidence that repatriation has encouraged the shifting of more corporate dollars and investments offshore.”