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A tax holiday for big business that both liberals and conservatives can get behind

Multinational corporations harbor and invest nearly $1.5 trillion overseas to avoid the 35 percent US corporate tax rate. Giving them a 'repatriation holiday' – a tax break if they bring that cash home and create jobs – will please both sides of the aisle and the American people.

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President Obama is in a tight spot this Labor Day. The dismal economic climate is going to make for a diminished holiday, and the president’s much-anticipated September “Jobs Plan” is already under microscopic scrutiny.

After his failure to coalesce the “Gang of Six” during the recent debt talks, it’s easy to imagine Joe Biden is more determined than ever to craft a bipartisan solution that addresses anemic job creation and unacceptably high unemployment levels. Let’s suppose he has been quietly crafting a centerpiece idea to headline the President’s announcement and that he has penned a memo to his boss.

Here’s how it might read:

I urge you not to cast aside the one idea that can immediately produce new revenues and new jobs; will re-ingratiate you with the CEO community; can be creatively structured to address legitimate liberal concerns about corporate abuse; and will garner strong support from conservatives who will see it as a “good” stimulus program.

Bring home the bacon, Mr. President, the bacon being a big slice of the nearly $1.5 trillion in corporate profits that are “trapped” offshore. Bring it home with a “repatriation holiday.” But this time – unlike when your predecessor tried a similar policy – make sure you require companies to do what they say they want to do, create new jobs. Trust but verify, as President Reagan used to say.

US corporations invest overseas, not at home

Secretary Geithner tells us the multinationals are sitting on roughly $1.5 trillion overseas as a result of (legitimately) dodging taxes on profits earned outside the United States. He also laments how these companies go to great length and cost (lawyers, investment bankers, and bean counters) to outsmart the taxman. True, but they do so because our tax code’s 35 percent rate motivates them to do just that. Second only to “lost decade” Japan, America has the highest rate in the world.

These massive stockpiles of overseas funds are not sitting idle. They are building shareholder wealth with more plants and R&D facilities and creating more jobs offshore, serving both international and US markets: “Outsourcing” as the pundits and critics like to say; “Shovel-ready” projects to use your quip – but these investments are not happening here.

When these corporations are not building, they’re buying – foreign companies and foreign jobs – and paying hefty premiums for their purchases. Microsoft in May said it would shell out $8.5 billion for the Internet voice and video business of Luxembourg-based Skype. Last week Hewlett-Packard pounced on the Britain-based software company Autonomy and will pay a tidy $10.3 billion.

Microsoft reportedly has $42 billion cash offshore and HP has $13 billion in its total cash kitty (the offshore amount isn’t broken out). Tapping into trapped offshore funds is ridiculously tax effective for these multinationals.

Building and buying offshore enhances stock values whereas repatriation of these profits at an unnecessary 35 percent tax burden to do the same at home does just the opposite. Financial patriotism isn’t on the corporate board of directors’ agenda.

Time is ripe for a repatriation holiday

You have gone on record, Mr. President, as saying you will consider the repatriation holiday idea, but only in the context of overall tax reform. With all due respect, you squandered a colossal opportunity to do just that by turning your back last fall on the tax-reform recommendations of your bipartisan Bowles-Simpson Commission. Remember? They suggested that Congress jettison all special interest “loopholes” from the tax code (including breaks for corporate jet owners) and slash the corporate tax rate to 26 percent.

Your idea for a “grand bargain” deficit plan last month took a bite at tax reform, but quickly lost its appetite. And candidly, Sir, the new “six of one, half dozen of the other” congressional “super” committee to tackle budget deficits won’t even nibble at the idea.

The tax-reform train has now left the station and won’t return until well after the 2012 elections. So it’s time for you to get out in front and lead: Offer corporate America a six-month holiday to repatriate offshore profits at a tax rate of 5.25 percent.

To be sure, the Bush administration proposed this idea in 2004 and it “successfully” brought home $362 billion of offshore profits. But it miserably failed to accomplish its main “brick and mortar” goal of building new factories in America.

The legislation was poorly conceived and loosely drafted, and allowed companies to funnel the cash virtually unchecked. Reportedly 92 percent of the repatriated amounts were returned to shareholders as dividends and stock buybacks, and some companies actually shut down US plants and slashed payroll.

President Bush served up a lot of beans but not much bacon.

This time, cook up something that sizzles, Mr. President. Your proposal should link the corporate tax benefit directly and verifiably to new jobs created at home.

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