Treasury dismisses idea of tax holiday for foreign profits unless it's part of broader reform
A top Treasury official said that a temporary tax holiday to allow U.S. corporations to bring back billions of dollars in overseas profits should only be part a broader overhaul of the tax code, pouring cold water on a top legislative priority this year of many multinational companies.
Lobbyists and corporate executives have pushed for an incentive to lure back billions of dollars parked overseas to avoid high U.S. tax rates, an issue known as repatriation.
Silicon Valley companies have led the charge.
Cisco Systems Inc. Chief Executive John Chambers and Oracle Corp. President Safra Catz made the case last fall in an opinion piece in the Wall Street Journal, arguing that temporarily reducing the rate on overseas earnings from 35% to 5% would generate as much as $50 billion in tax revenues. A group of high-tech executives pressed the issue with lawmakers last week in a lobbying blitz by the Silicon Valley Leadership Group.
The effort has bipartisan support -- Sens. Barbara Boxer (D-Calif.) and John Ensign (R-Nev.) unsuccessfully pushed for repatriation to be part of the huge 2009 economic stimulus package -- and received a boost this week when House Majority Leader Eric Cantor (R-Va.) endorsed it.
But Michael Mundaca, the assistant Treasury secretary for tax policy, said in a blog post Wednesday that a similar break in 2004 cost taxpayers billions of dollars in lost tax revenue with "no evidence that it increased U.S. investment or jobs."
He reiterated comments made recently by Treasury Secretary Timothy F. Geithner that such a break should only be considered as part of broader corporate tax reform, which President Obama made a priority in his State of the Union address.
"Comprehensive, long-term reform has the potential to benefit businesses across the United States, and make our economy more competitive," Mundaca wrote. "A narrow group of businesses has suggested that instead, our primary focus should be a temporary repatriation tax holiday -- an idea tried a few years ago that gave a select group of U.S. multinational corporations a temporary, substantial tax break on their overseas profits. However, letting our eye off the ball of comprehensive tax reform in favor of a temporary measure of this kind would be a mistake."
Cantor argued in a speech in Silicon Valley on Monday that the tax holiday was a smart short-term move while Congress and the White House wrangled over the complex issue of overhauling the corporate tax code.
"Forging consensus on this type of fundamental tax reform will take time, so in the meantime I propose that we allow U.S. multinational companies to bring back almost $1.2 trillion in overseas profits at a lower tax so they can invest in our economy here at home," Cantor said at Stanford University's Hoover Institution.
But Mundaca said that acting on the issue separately would be a distraction.
"The tax treatment of overseas earnings could be considered as a part of broader corporate tax reform, but as Secretary Geithner has said, it would not be sensible to consider a repatriation holiday outside of that context," Mundaca said.
-- Jim Puzzanghera
Photo: Cisco Systems Chief Executive John Chambers. Credit: Bloomberg