The Senate Permanent Subcommittee on Investigations is probing the idea of a tax holiday for corporate overseas earnings, as lawmakers and the White House continue to weigh options for changes to business taxes.
In a letter dated June 29, subcommittee Chairman Carl Levin (D., Mich.) says the subcommittee is “currently reviewing matters relating to the repatriation of offshore funds,” and asks companies for “information about your company’s plans if Congress enacted” a proposed tax holiday, according to a copy. It also says that after reviewing responses, the subcommittee “may contact your company to obtain clarification or additional information.”
A questionnaire accompanying the letter asks companies more-detailed questions about their cash on hand at the end of 2010 and their plans for using those funds. It also asks whether they took advantage of a previous repatriation that Congress adopted in 2004, as well as about their total number of employees at the end of each year from 2003 through 2008.
A coalition of big companies including Microsoft Corp., Apple Inc. and Google Inc. is pushing for another temporary holiday, which would allow U.S. multinationals to bring home their overseas earnings at a much-reduced tax rate. That would allow for more investment and hiring in the U.S., they say. Currently, U.S. companies say they are hindered from repatriating those earnings by the relatively high U.S. corporate tax rate of 35%. That encourages companies to reinvest their profits overseas, they say.
Some academic researchers panned the earlier tax holiday for failing to produce much in the way of new investment or hiring. That law sought to require firms to reinvest repatriated funds in the U.S., but in practice the requirement was ineffective and easy to skirt, critics say. The biggest impact instead came in stock buybacks and dividend payments, they say.
Mr. Levin has previously criticized the tax holiday idea, suggesting in 2009 that it could reduce U.S. tax collections as well as U.S. job creation. One reason is that it encourages companies to deliberately shift profits and operations offshore, he contended. Spokesmen for Sen. Levin didn’t immediately respond to requests for comment on Thursday evening.
Supporters of the tax holiday idea think its benefits have been ignored or underestimated. Most of the idea’s support in Congress comes from Republicans, but even some Democrats have begun to warm to it.
But the Obama administration has vowed to fight it. Some administration officials - as well as some big companies - think that giving another tax holiday would sap momentum for the permanent corporate rate reduction that they’re seeking.
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