House Introduces One-Year Repatriation Holiday
Posted August 22, 2011
House Introduces One-Year Repatriation Holiday
Multinational corporations with more than $1 trillion in profits parked offshore may be in for a tax holiday.
The Freedom to Invest Act of 2011 (H.R. 1834), introduced in the House of Representatives in May, would give corporations one year to repatriate cash at substantially lower tax rates.
Characterized as a "jobs creation bill," the legislation would provide for a 5.25 percent tax rate on repatriated earnings, instead of the statutory 35 percent that would otherwise apply. Tax savings for U.S. companies are estimated to be in the billions. Supporters hope that, if the bill were passed, this newfound capital would be invested in new plants and equipment and used to create new jobs.
Critics claim that a previous "one-time-only" repatriation holiday in 2005 points to different results. Back in 2005, corporations were allowed to bring home dollars earned overseas at a maximum tax rate of 5.25 percent. More than $300 billion did make it home, but it was unclear whether repatriated dollars were actually reinvested in American jobs, as intended.
The new bill has a provision to address the job creation concern. Any company participating in the tax holiday would pay a fine of $25,000 for each job cut in the two years after accepting the terms of the tax deal. The fine would take the form of an addition to taxable income, which would result in about $8,750 in additional taxes for each job cut.
The Freedom to Invest Act has been sent to committee, where its fate is unclear.
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