A tax holiday for big business that both liberals and conservatives can get behind
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How to get corporate buy-in and accountability
Here is the concept: For every $10 million a company repatriates at the lower 5.25 percent tax rate, it will sign on to create a modest, finite number of jobs in the US over one or two years (I defer to your Council on Economic Advisors for the right number). Failure to meet the job creation requirement for any $10 million repatriation slice will kick the tax rate right back to 35 percent.
And don’t forget to fashion this as a “net” job creation proposition, so if layoffs also occur at a corporation during the designated time frame, this will count negatively. Your program will be remembered as “balanced,” but one that also satisfies a famished job market.
This idea will quickly produce both real jobs and an immediate flow of funds to our shores: $675 billion in repatriated funds and added tax revenues of $35 billion if we assume 45 percent of the available bacon ($1.5 trillion) is brought home (this is the same percentage from the 2004 initiative) at a repatriation holiday rate of 5.25 percent.
But why would corporations voluntary repatriate their profits at 5.25 percent, when they can harbor them offshore now without paying any taxes – certainly not the 35 percent corporate tax rate? A number of CEOs, among them John Chambers of CISCO and Jeff Immelt of GE, who chairs your Jobs Council, are aggressively promoting some form of a repatriation plan. Here’s why.
First, they are running out of uses for their oversized pile of foreign reserves, and there are just so many quality foreign acquisitions out there. In addition, CEOs see the political wisdom of not being branded as unpatriotic “outsourcers” in a down US economy. They would be quite amenable to paying a modest 5.25 percent toll charge to have the funds available to use “onshore” for new investments and shareholder distributions.
A plan that winds bipartisan support
And what about bipartisan political support? No plan will be politics-free. The congressional Joint Committee on Taxation reports another 5.25 percent tax holiday will cost the federal government nearly $79 billion in lost tax revenues over 10 years. That number is hotly disputed by a center-left think tank, NDN, that contends a repatriation holiday will actually result in a net revenue gain of nearly $9 billion over 10 years.
But the shortcoming with both of these studies is they require predictions on uncertain corporate behavior over a decade. Your plan would essentially nail down real numbers at the onset and leave the imponderables of the “out” years for endless debate by the economists.
If you’re worried about conservative support, House Majority Leader Eric Cantor, among others, enthusiastically embraces the repatriation idea and will likely hail your program as a job creating “tax cut” – yet one that actually raises tax revenues.
And why not use these newfound tax revenues to fund another of your job creation ideas – the “infrastructure bank” that is the favorite of the liberals? New York Sen. Charles Schumer (D) has suggested this, and it is a clever way to soften-up some of the “anti-repatriation” Democrats who chastise such plans as a corporate “giveaway.”
This tax holiday idea, Mr. President, is straightforward. Lobbyists on K Street and all the beltway pundits and politicians, not to mention the regular folks with whom you recently “townhalled” in the heartland, will understand it. I believe the corporate community will embrace it along with a reasonable “quid-pro-quo” jobs stipulation. If thoughtfully structured without the usual overburdening tax minutia, it’s something the multinationals can implement immediately.
I urge you to include this idea in the job creation recommendations you present to Congress when lawmakers return next month from their holiday. And be sure to put it at the very top of your list because it is bipartisan, creatively addresses the shortcomings of the 2004 Bush plan, and is precisely what is uppermost in the minds of most Americans – creating new jobs and revenues.
John Klotsche is a retired tax partner and former chairman of the executive committee of the international law firm Baker & McKenzie. He served as senior advisor to the IRS commissioner from 2003-2008. He now writes fiction and nonfiction short stories.