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Foreign earnings tax break could add 2.9 million jobs, study says

Temporarily reducing the tax rate on the foreign earnings of U.S. companies would lure back $700 billion in profits held abroad, the U.S. Chamber of Commerce says. The Obama administration opposes a break that is not part of broader corporate tax reform.

September 08, 2011|By Jim Puzzanghera, Los Angeles Times

Reporting from Washington — A huge, one-time tax break to lure back about half of the $1.4 trillion in earnings held abroad by U.S. companies would produce nearly 3 million jobs nationwide over two years, according to a study by the U.S. Chamber of Commerce.

A so-called repatriation tax break, which would temporarily reduce the tax rate on foreign earnings to 5.25% from 35%, has been pushed by the chamber and major U.S. corporations, including Cisco Systems Inc. and Oracle Corp.


FOR THE RECORD:
An earlier version of this online article said a repatriation break would lure $700 billion in foreign earnings back to the U.S., $500 million more than would come back over the next 10 years, according to the congressional Joint Committee on Taxation. In fact, the estimate by the panel said the repatriation break would result in $500 billion more than would come back over the next 10 years..

Many Republicans support the move, as do some Democrats, who have been pushing President Obama to include such a proposal in the $300-billion jobs package he will announce Thursday.

The U.S. Conference of Mayors — headed by Los Angeles Mayor Antonio Villaraigosa, a Democrat — called for a foreign earnings tax break as part of a job-creation plan it released Friday.

Despite the bipartisan support, a spokeswoman for Treasury Secretary Timothy F. Geithner reiterated Wednesday that the administration opposes a repatriation break that is not part of broader corporate tax reform.

Many liberals argue that a repatriation break only encourages companies to hold more money abroad to wait for another tax holiday. A similar break in 2004, they said, didn't create the promised jobs; companies instead used the windfall to reduce debt, make purchases or pay shareholders.

The chamber study, prepared by conservative economist Douglas Holtz-Eakin, said the break would encourage companies to bring money back to the U.S. at the lower rate, boosting the economy and hiring.

Holtz-Eakin, a former top economic advisor to President George W. Bush, estimated the move would increase the nation's total economic output by $360 billion over two years and would add 2.9 million jobs — all for much less cost than another government stimulus program.

According to an estimate this year by the congressional Joint Committee on Taxation, a repatriation break would lure $700 billion in foreign earnings back to the U.S., $500 billion more than would come back over the next 10 years. The federal government would lose about $80 billion in additional tax revenue in that case.

But compared with the $825-billion stimulus program enacted in 2009, the economic boost created by repatriation would be cheap, the chamber study said.

"Repatriation can be thought of as a private-sector approach to stimulus.... Cash flows would become available for hiring, real purchases of investment goods and research and development," the study said. "These cash flows would put resources in the hands of families and other companies."

U.S.-based multinational companies, particularly many large technology firms, said the high corporate tax rate forces them to park foreign earnings abroad. No taxes are due on that money until it is brought back to the United States.

The chamber's study noted that as foreign sales increase, so does the amount of money held overseas, with foreign operations of U.S. companies accounting for about 24% of their profits — up from 14% in the 1990s.

Holtz-Eakin acknowledged that studies of the 2004 tax break have shown widely different effects, ranging from 2.14 million jobs saved or created to none at all. But he said the return of the money would pump cash into the struggling economy.

"Cash that is trapped abroad in foreign-denominated assets benefits the U.S. economy when it returns, regardless of how firms choose to spend it," he said.

jim.puzzanghera@latimes.com

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