An army of corporate lobbyists in the halls of Congress
Now that the Senate failed to pass President Obama’s jobs legislation last night, various pieces of his plan and other pet projects are likely to be introduced separately. It’s unclear whether an extension of the payroll tax reduction or additional unemployment benefits — two key planks of the President’s plan — will get floor time. But corporate interests are getting plenty of attention from members of the Senate. In particular, an army of corporate lobbyists has been vigorously promoting a tax holiday for U.S. multinationals.
Politico says the senior New York US Senator, Democrat Chuck Schumer:
has been quietly courting some Senate Republicans and Democrats to see whether there is any appetite for merging a GOP-backed idea — a tax holiday for corporations to bring home their overseas profits — with a Democratic-supported plan of creating a national infrastructure bank.
There is no evidence that giving multinational corporations a big tax break on profits earned overseas will create jobs or stimulate the economy. But some, like former director of the Congressional Budget Office Douglas Holtz-Eakin, believe that a tax holiday will actually create economic growth. Holtz-Eakin writes in Bloomberg:
Repatriation can be thought of as a private-sector approach to stimulus.
Both the left and the right have poured cold water on this idea. The Heritage Foundation, the conservative think tank, says the proposed holiday would not spur additional U.S. capital investment or jobs because corporations have plenty of profits onshore and there is easy access to financing. J.D. Foster and Curtis Dubay of the Heritage Foundation write (emphasis mine):
The current proposal would cut taxes, which is generally a good thing, but if another repatriation tax holiday were enacted, one should expect a similar result as last time: specifically, a surge in repatriations and little appreciable increase in domestic investment or job creation. The repatriation holiday would have little or no effect on investment and job creation, the key to the whole issue, simply because the repatriating companies are not capital-constrained today.
Any investment, any action that they would deem worthwhile today can be and is being financed by current and accumulated earnings. For those rare instances in which outside financing is needed, interest rates remain at historic lows and few if any of these repatriating companies are constrained.
Criticism from the liberal end of the political spectrum is best summarized in a report issued by U.S. Senator Carl Levin yesterday. Bloomberg reports on Levin’s findings (emphasis mine):
“It has the opposite effect of what we really need in this country, which is job creation,” Levin said this morning at a press briefing. “It’s also unfair to the 96 or 97 percent of the companies who keep their operations here.”
Levin said the push for repatriation is part of a pattern of “preference for the few at the expense of the many” in the tax code and public policy that is fueling public anger and frustration reflected in the Wall Street demonstrations and other protests.
Levin said the report found that after bringing back to the U.S. more than $150 billion in 2004 at the lower tax rate, the top 15 repatriating corporations reduced their overall workforces by more than 20,000 jobs.
In spite of Senator Levin’s concern for those protesting on the streets, the proposed repatriation has a legion of promoters in the halls of Congress. Bloomberg News reports:
Data compiled by Bloomberg News show that Forbes is part of an army of more than 160 lobbyists, including at least 60 who once worked for a sitting member of the House or Senate, pushing for the repatriation holiday. Their job is to persuade Congress to establish a tax break estimated to cost the U.S. government $78.7 billion over the next decade.
The Senate legislation to repatriate this $1 trillion of corporate profits, S.1671, has some fancy caveats about spurring job creation. The primary part of the legislation reduces the tax rate on repatriated profits from 35 percent to 8.75 percent. The additional provisions are not likely to spur much job creation though because the economic incentives and penalities are relatively tiny when compared to the overall tax benefit. From a promotional piece from Senator Hagan:
The Foreign Earnings Reinvestment Act allows firms to obtain up to a 5.25 percent effective repatriation rate if they expand their U.S. payroll during 2012 by 10%.
The proposal discourages firms from reducing employment by including in a company’s gross income calculation $75,000 per fulltime position that is eliminated.
It’s very hard for a corporation to expand its payroll 10 percent in one year in a time of slack economic demand, so it’s not clear that many would utilize that incentive. A $75,000 penalty for reducing a job in a large corporation is barely a slap on the wrist. It’s hard to see these provisions as anything more than window dressing to appease the media.
It would be madness for the U.S. Congress, in the face of high unemployment and the worst housing crisis in the history of our nation, to grant this enormous proposed tax relief to major US corporations. Both left and right say it would not spur new jobs based on what corporations did in an earlier 2004 repatriation. We could hope that the suffering of the people would claim more attention than profits for big corporations. But an army of 160 lobbyists is marching through the halls of Congress promising campaign contributions and other special favors for legislators who support this tax holiday. Sadly our compromised Congress will pose no resistance to this corporate agenda.