Congressional Republicans including Eric Cantor and Kevin McCarthy are girding House Speaker Boehner this week to slip a temporary tax holiday into a year-end tax deal to enable U.S. multinationals to shift overseas profits back into the U.S. at bargain basement tax rates. However, corporate tax chiefs from two major corporations that might benefit from such an arrangement said Wednesday they would prefer to forego it and hold out to gut the whole tax code.
What's at stake is at least $1.4 trillion in offshore corporate accounts, according to JPMorgan Chase. But many companies, including Cisco, Pfizer, General Electric, Microsoft, and Google, say they are prepared to bring those profits home in return for what would essentially be a one-year tax holiday. A growing coalition of large corporations, congressional Republicans, and a few Democrats including Sens. Chuck Schumer of New York and Kay Hagan of North Carolina, and even labor leader Andy Stern are all in favor of enacting a one-time repatriation initiative.
A 2005 repatriation program cut the top U.S. corporate tax rate for companies repatriating foreign profits from 35 percent to 5.25 percent. However, influential Republicans like House Ways and Means Chairman Dave Camp, R-Mich., and Senate Finance committee ranking member Orrin Hatch, R-Utah, have said they would prefer to loop a repatriation program into a broader tax reform deal rather than enact it by itself.
A panel of executive tax officers from Nike, Inc. and Boeing assembled on Capitol Hill Wednesday sided with Camp and Hatch, saying a temporary tax holiday would do them little good unless it were attached to a broader corporate tax reform deal to lower the permanent U.S. corporate tax rate.
“Repatriation, singularly, is not helpful,” said Wayne Monfries, Chief Tax Officer of sporting giant Nike to the crowd of mostly policy analysts organized by the RATE Coalition, a lower tax advocacy group. Repatriation should be used as a tool to help the U.S. transition from the current tax code to a new one, once it exists, Monfries said. “Repatriation only impacts U.S. companies that operate globally. We want to make sure that corporate tax reform impacts everyone and helps everyone in the U.S….and that means reducing the rate.”
Boeing’s tax chief agreed. “I think it’s best to deal with it [repatriation] in the overall context of tax reform as opposed to dealing with it on a one-off basis,” said James H. Zrust of Boeing. “Repatriation is a singular issue in the international area… our elected officials need to work together to enact reform that is centered on a meaningful reduction in the corporate tax rate—that must be the cornerstone.”
The top U.S. corporate tax rate is currently 35 percent—the highest of any country besides Japan. And when state taxes are added to the mix, the rate soars to 40 percent. Yet few companies pay the full rate because of a convoluted system of tax write offs. The chairmen of key congressional committees as well as scores of business leaders have repeatedly endorsed slashing the top corporate tax rate from 35 percent to 25 percent in order to make U.S. businesses more competitive with foreign counterparts and better able to invest in the U.S. A total tax code revamp, including abolishing a number of tax breaks, is unlikely to happen before the 2012 election.