Corporate profits

Bringing foreign company profits back to the U.S. isn’t necessarily a job boost

Letting U.S.-domiciled multinationals take profits overseas at less than the current top tax rate of 35% could be very good for multinationals and for Washington’s coffers, but probably not to stimulate economic growth. use.

In 2004, under President George W. Bush, Washington let companies temporarily bring in money from offshore profits at a flat rate of around 5.25%. But a few years later, Bush’s own chief economic advisers said there was no evidence jobs were created as a result.

Getting the United States back to work is as important for global stock markets as solving the European sovereign debt crisis.

The U.S. Chamber of Commerce said in a Sept. 7 report that the tax relief would be different this time around, boosting GDP by about $360 billion and creating about 2.9 million new jobs. The Obama administration opposes a pause that is not part of broader corporate tax reform.

Many members of Congress argue that corporations are leaving billions of dollars overseas at the expense of bringing them home to invest in jobs. However, says Douglas Shackelford, professor of taxation and accounting in the MBA program at the University of North Carolina, “there is no convincing evidence that this has created jobs. It is true that multinationals are sitting on huge amounts of money overseas and they brought it back they would be hit with up to 35% off upfront.Because of this rate, the United States derives no revenue from these The way the 2004 law was written, you had to demonstrate that you were going to hire more workers in the U.S. Instead, they paid more dividends and bought back more shares of the company .”

All of Western Europe allows its multinationals to repatriate billions of dollars home without paying the statutory corporate tax rate. They enjoy a much lower single-digit rate in countries like Japan and the UK, where corporate tax rates are similar to those in the US, with US companies in the middle of the of them. In theory, the tax relief avoids double taxation on corporate profits deposited in other countries, but the problem is that part of these profits are registered in tax havens which do not have tax on the income.

To see: A slideshow of corporate tax rates around the world, from lowest to highest

The alternative tax policy touted by Republicans is to allow companies to take profits offshore at a reduced rate, as low as 5.25%. Ideally, the rate would be so low that there would be no reason to keep it offshore unless the company is using it to invest overseas. But with the corporate tax rate being what it is, the second highest effective tax rate in the world, according to the Organization for Economic Co-operation and Development, or OECD, corporations are doing what makes logical sense. for them.

Repatriating those offshore profits to places like Bermuda and Singapore could allow much of the foreign profits to return home at a steep discount. According to the Brookings Institute, probably 85% of the roughly $1.5 trillion is in offshore business accounts. Although this seems like an effective strategy to revive the economy, the idea is fraught with problems.

“In many cases, these companies have already made tax-free profits by using techniques that shift reported earnings to tax havens, like Google, anyway to avoid a huge amount of tax. taxes should be paid at some point,” William Gale, senior fellow at Brookings, written this summer.

For years, companies that invest overseas have claimed that the practice bolsters jobs in the United States. Now they argue that sending the money back to the United States would spur economic expansion. They should make up their minds, Gale wrote.

For the United States Chamber of Commerce, a reduced tax on repatriated income is a step towards a territorial tax system – a system with no or very low permanent tax on repatriation. The repatriation tax policy would help lower the overall corporate rate at a time when the high US rate is hurting economic growth, the amount and quality of US investment, and the wages of US workers.

To see: The Need for Growth-Friendly Corporate Tax Reform

On Monday, President Barack Obama sent his jobs plan to Congress and asked Congress to sign a number of provisions immediately, including the expansion of the road bill, the deduction of payroll taxes and an increase in this deduction for employees and employers. The corporate tax reform, including the repatriation of offshore profits will eventually be modified, was not on the list. Small businesses and investments in physical infrastructure topped the list, with a focus on small businesses.

From the White House press release:

THE AMERICAN EMPLOYMENT ACT

1. Tax cuts to help American small businesses hire and grow

  • Halve payroll taxes for 98% of businesses: The president’s plan will halve taxes paid by businesses on their first $5 million in payroll, targeting the 98% of businesses with payrolls below that threshold.
  • Full payroll tax exemption for additional workers or wage increases: The President’s plan will completely eliminate payroll taxes for companies that increase their payroll by adding new workers or increasing the salary of their current worker (l benefit is capped at the first $50 million of payroll increases).
  • 100% spending extension through 2012: This continues to be an effective incentive for new investment.
  • Regulatory reforms and relief to help entrepreneurs and small businesses access capital.

2. Put workers back to work while rebuilding and modernizing America

  • A “Returning Heroes” hiring tax credit for veterans: These are tax credits of $5,600 to $9,600 to encourage the hiring of unemployed veterans.
  • Prevent up to 280,000 teacher layoffs, while keeping cops and firefighters on the job.
  • Modernize at least 35,000 public schools across the country, support new science labs, internet-ready classrooms, and renovations in schools across the country, in rural and urban areas.
  • Immediate investments in infrastructure and a bipartisan National Infrastructure Bank, modernizing our roads, railroads, airports and waterways while putting hundreds of thousands of workers back to work.
  • A new “reconstruction project”, which will put people to work to rehabilitate homes, businesses and communities, by mobilizing private capital and developing land banks and other public-private collaborations.
  • Expand access to high-speed wireless as part of a national spectrum release plan.

3. Return-to-work pathways for American job seekers.

  • The most innovative reform of the unemployment insurance program in 40 years: as part of an extension of unemployment insurance to prevent 5 million Americans looking for work from losing their benefits, the The president’s plan includes innovative work-based reforms to avoid layoffs and give states greater flexibility to use unemployment insurance funds to better support job seekers, including:
  • Work Sharing: UI for workers whose employers choose work sharing over layoffs.
  • A new “Bridge to Work” program: The plan builds on and enhances innovative state programs where displaced people accept temporary, voluntary work or undergo on-the-job training.
  • Innovative entrepreneurship and salary insurance programs: States will also be empowered to set up salary insurance to help re-employ older workers and programs that make it easier for the unemployed to start their own business.
  • A $4,000 tax credit to employers for hiring the long-term unemployed.
  • Prohibit employers from discriminating against the unemployed when hiring.
  • Expand employment opportunities for low-income youth and adults through a fund for successful subsidized employment approaches, innovative training programs, and summer/year-round jobs for youth.

4. Tax relief for every American worker and their family

  • Halve payroll taxes for 160 million workers next year: The president’s plan will extend the payroll tax cut passed last year to halve payroll taxes for workers in 2012, delivering a tax cut of $1,500 to the typical American family, with no negative social impact. Security Trust Fund.
  • Allowing more Americans to refinance their mortgages at today’s interest rates of nearly 4%, which can put more than $2,000 a year in a family’s pocket.

5. Fully paid under the President’s long-term deficit reduction plan.

To ensure that the American Jobs Act is fully paid, the President will ask the Joint Committee to propose additional deficit reduction necessary to pay the Act and still meet his deficit target. The President will release a detailed plan in the coming days that will show how we can get there while achieving the additional deficit reduction needed to achieve the President’s broader goal of stabilizing our debt as a share of the economy.

Estimated prices:

Tax cuts to help US small businesses hire and grow $70 billion

Halve employer payroll taxes and additional payroll for new jobs/wages $65 billion

Extend spending to 100% in 2012 $5 billion

Getting workers back to work while rebuilding and modernizing America $140 billion

Rehiring teachers and first responders $35 billion

Modernization of schools $30 billion

Immediate surface transport $50 billion

$10 billion infrastructure bank

Rehabilitation/repurposing of vacant properties (neighbourhood stabilization) $15B

National Wireless Initiative 0*

Veterans Hiring Initiative so

Pathways Back to Work for Americans Looking for a Job $62 Billion

Reform and extension of unemployment insurance $49 billion

Employment tax credit for the long-term unemployed $8 billion

Pathways back to work funds $5 billion

TOTAL $447 BILLION

To see: Fact Sheet and Preview of Obama’s Latest Job Offer