Bloomberg News

Repatriation Tax Holiday Would Cost U.S. $95.8 Billion

June 09, 2014

A temporary tax holiday for U.S. companies to repatriate offshore profits would cost the government $95.8 billion in revenue over a decade, said the Joint Committee on Taxation, Congress’s nonpartisan scorekeeper.

Lawmakers occasionally talk about a repatriation tax break as a way to pay for spending such as replenishing the Highway Trust Fund. The estimate shows the difficulty of making such an argument.

According to the estimate, dated June 6, repeating the tax holiday enacted in 2004 would generate $19.6 billion over the first two years and then start costing the government money.

“A second repatriation holiday may be interpreted by firms as a signal that such holidays will become a regular part of the tax system, thereby increasing the incentives to retain earnings overseas,” JCT Chief of Staff Thomas Barthold wrote in the estimate.

Moving Profits to Cut U.S. Taxes

Under the U.S. tax system, companies owe the federal government based on their worldwide income. They can defer taxes on income earned overseas until they repatriate it, giving companies an incentive to book profits outside the U.S. and stockpile them there.

As of earlier this year, 307 large U.S.-based companies held $1.95 trillion in accumulated profits outside the U.S., up 11.8 percent from a year earlier. Among the companies with the largest stockpiles are Apple Inc. (AAPL:US), Microsoft Corp. (MSFT:US) and Pfizer Inc. (PFE:US)

Cisco, Oracle

U.S. companies, including Cisco Systems Inc. (CSCO:US) and Oracle Corp. (ORCL:US), mounted a 2011 lobbying push for a tax holiday. That effort fell short, impaired in part by a JCT estimate at the time showing that it would increase budget deficits by $78.7 billion over a decade.

A one-time tax break has a different budgetary effect than a lower tax rate on repatriations if paired with structural changes to the international tax system. In that case -- as proposed in different forms by President Barack Obama and Republican Representative Dave Camp -- there can be a temporary increase in revenue that could be used for spending or other items.

The estimate was prepared for Senator Orrin Hatch of Utah, the top Republican on the Finance Committee. He and Chairman Ron Wyden, an Oregon Democrat, issued a statement on June 5 saying they wanted to avoid “diverting” any revenue from repatriation to issues outside of a revamp of the tax code.

Highway Fund

Senator Rand Paul, a Kentucky Republican, had -- in consultation with Majority Leader Harry Reid, a Nevada Democrat -- floated the idea of using his repatriation proposal, S. 911, to replenish the highway trust fund, according to a Senate Democratic aide who spoke on condition of anonymity. The trust fund may need a cash infusion as soon as July to reimburse states for road construction.

Paul’s idea has been discarded following objections from Wyden and Hatch, the aide said.

“A tax holiday meant to encourage U.S. companies to repatriate funds from overseas should only be considered when it makes economic sense, such as part of comprehensive tax reform,” Hatch said in a statement.

He said today’s report “clearly outlined the ramifications of a temporary tax holiday, and the outlook is not in the best interest of the American people nor for the coffers of the federal government.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Laurie Asseo

A temporary tax holiday for U.S. companies to repatriate offshore profits would cost the government $95.8 billion in revenue over a decade, said the Joint Committee on Taxation, Congress’s nonpartisan scorekeeper.

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