TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, October 11, 2011

Senate Report: 2004 Repatriation Tax Holiday Failed on Every Level

Senate (2)The Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs today released Repatriating Offshore Funds: 2004 Tax Windfall for Selected Multinationals:

[T]he 2004 repatriation tax break that allowed U.S. companies to bring $312 billion in offshore earnings back to the United States at an extraordinarily low tax rate did not produce any of the promised benefits of new jobs or increased research expenditures to spur economic growth. The report looked at the top 15 repatriating companies. ...Among the report’s findings are the following.

  • No Job Increase. The repatriation tax break failed in its express purpose to increase U.S. jobs. After repatriating $155 billion, the top 15 repatriating firms reduced their overall U.S. workforce by nearly 21,000 jobs.
  • No R&D Increase. The repatriation tax break did not accelerate investments in research and development. In fact, among the top 15 repatriating corporations, the pace of R&D spending slightly decreased after the tax break.
  • Stock Buybacks Increased. Despite a prohibition on using repatriated funds for stock repurchases, which are often used as a way to share corporate profits with stockholders and push up the stock price, the top 15 repatriating corporations accelerated their spending on stock buybacks after repatriation. ...
  • Executive Pay Increased. Despite a prohibition on using repatriated funds for executive compensation, the pay of the top five executives at the top 15 repatriating corporations jumped 27% from 2004 to 2005, and another 30% from 2005 to 2006. Average worker pay in the same years increased 3% and 11%.
  • Narrow Group Benefitted. The repatriation tax break benefitted a narrow slice of the U.S. economy, primarily pharmaceutical and technology corporations, while providing no benefit to domestic firms that chose not to engage in offshore operations or investments.
  • Tax Haven Dollars Predominated. A substantial share of the repatriated funds came from tax haven jurisdictions such as Bermuda, the British Virgin Islands, the Cayman Islands, and Switzerland, with seven of the surveyed corporations repatriating between 90 and 100% of their funds from tax havens.
  • Offshore Funds Increased. Since the 2004 repatriation tax break, repatriating corporations have accumulated offshore funds at a greater rate than before the tax break, evidence that repatriation has encouraged the shifting of more corporate dollars and investments offshore.

Press and blogosphere coverage:

http://taxprof.typepad.com/taxprof_blog/2011/10/senate-report-.html

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Comments

Tax holidays are stupid. Even if they are purported to be "one time only", they create an expectation of future holidays.

This argument is the same for "one time only" amnesties for illegal immigrants. It's not ideological. "One time only" deals are stupid, no matter who they favor.

Posted by: AMTbuff | Oct 11, 2011 12:06:50 PM

Without context, and coming from a Democrat controlled Senate, these numbers are useless.

Compare the hiring and R&D of these companies with similar companies over the same time period, and I would be willing to bet there would be quite a difference.

Posted by: Georg Felis | Oct 12, 2011 8:39:22 AM