Large Corporations Lobby For Tax Holiday

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Large Corporations Lobby For Tax Holiday

Yesterday, we posted a blog describing a recent IRS investigation into Google’s method of reducing their tax bill by transferring intellectual property assets into overseas entities where the income from those assets are taxed at rates which are more favorable.  One of the obvious problems with this strategy is that, in order to avoid paying United States taxes on this income, the money must be left in those entities and outside of the United States.  Which is exactly  where companies such as Google would like to put all that money to use.  Unfortunately, if these funds are brought back to the United States, they would then be subject to a top corporate income tax rate of 35 percent.

A coalition of large companies such as Microsoft, Apple, Pfizer, and Google have assembled a team of more than 160 lobbyists to push Congress for a “tax repatriation holiday.”  They are seeking a repeat of a 2004-2005 tax break that allowed them to bring profits into the United States at a rate of 5.25 percent, much lower than the aforementioned corporate rate of 35 percent.

Given the size and profitability of the companies involved, this is no small matter.  It is estimated that the amount of money at issue likely tops $1 trillion.  Advocates of the tax holiday are pointing to studies that indicate the possibility of a massive influx of funds, possibly more than $300 billion, into the United States GDP as well as the potential creation of millions of jobs.  While detractors point to competing studies which show that, during the previous tax break, the repatriated proceeds were used by the companies to buy back shares of their own stock and boost shareholder value, instead of boosting the overall economy by hiring new employees or investing in infrastructure.

One important consideration is the difference in economic circumstances between the first tax holiday and the one that is currently proposed.  2004-2005 was a relatively stable time for the United States economy, especially compared to the turmoil we have seen recently.  Given the events that have since transpired (bank bailouts, Wall Street protests, etc.) it is not hard to imagine that a significant portion of the public may be against any kind of “tax holiday” for large corporations.  It will certainly be interesting to see how this proposal develops going forward.