Paul L. Caron
Dean


Friday, April 10, 2009

Lobbying for Tax Benefits Yields 22,000% Return on Investment

Kansas City Star:  KU Professors Found Companies Realized Big Tax Savings by Spending for Lobbyists:

A 22,000 percent return on investment? Three professors at the University of Kansas say dozens of America’s largest companies got that sweet deal four years ago — not by hiring workers or purchasing new equipment, but by investing in Washington lobbyists. Those lobbyists, the three said, helped write a federal tax break that eventually put roughly $100 billion in tax savings in the pockets of the firms and their shareholders, at a cost to the companies of just pennies on the dollar.

Stephen Mazza, a professor at KU’s School of Law, and two associates spent six months examining the effects of one part of the American Jobs Creation Act, a major tax overhaul passed in October 2004. They looked at a provision that gave companies a one-year window to bring overseas earnings back into the U.S. at a 5.25 percent tax rate, rather than the usual 35 percent, as a jobs-creation incentive. The three professors then looked at how much such companies as IBM, Pfizer, and Eli Lilly and Co. spent lobbying for the break, and how much they saved when it passed.

The result? Ninety-three of the country’s biggest multinational firms pulled in tax savings of more than $62 billion — after spending just $283 million to lobby for the bill.

The study concluded that almost 500 companies got an average 22,000 percent return on their lobbying investments.

Raquel Meyer Alexander (University of Kansas, School of Business), Stephen W. Mazza (University of Kansas, School of Law) & Susan Scholz (University of Kansas, Accounting and Information Systems Area), Measuring Rates of Return for Lobbying Expenditures: An Empirical Analysis Under the American Jobs Creation Act:

The lobbying industry has experienced exponential growth within the past decade. The general public, the media, and special interest groups perceive lobbying to be a powerful mechanism affecting public policy. However, academic research finds inconclusive results when quantifying the rate of return on political lobbying expenditures. In this paper we use audited corporate tax disclosures relating to a tax holiday on repatriated earnings created by the American Jobs Creation Act of 2004 to examine the return on lobbying. We find firms lobbying for this provision have a return in excess of $220 for every $1 spent on lobbying, or 22,000%. Repatriating firms are more profitable overall, but surprisingly, profitability is not a predictor of repatriation amount. Rather, industry and firm size are most predictive of repatriation. Cash on hand, a proxy for ability to repatriate, is not associated with the repatriation decision or the repatriation amount. This paper provides compelling evidence that lobbying expenditures have a positive and significant return on investment.

(Hat Tip: Glenn Reynolds.)  

https://taxprof.typepad.com/taxprof_blog/2009/04/lobbying-for-tax-benefits-yields-22000-return-on-investment.html

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