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Senate Subcommittee Report on the Repatriating Offshore Funds 2004 . Success or Failure??

Executive Summary taken from United States Senate PERMANENT SUBCOMMITTEE ON INVESTIGATIONS Headed by Carl Levin, Chairman.


In 2004, the America Jobs Creation Act (AJCA) permitted U.S. corporations to repatriate income held outside of the United States at an effective tax rate of 5.25% instead of the top 35% corporate income tax rate.  The purpose of this tax provision was to encourage companies to return cash assets to the United States, which proponents of the provision argued would spur increased domestic investment and U.S. jobs.  In response, corporations returned $312 billion in qualified repatriation dollars to the United States and avoided an estimated $3.3 billion in tax payments, but the growth in American jobs and investment that was supposed to follow did not occur. 


The U.S. Senate Permanent Subcommittee on Investigations has long had an investigative interest in issues involving the movement of corporate funds to offshore jurisdictions and the treatment of those funds under the U.S. tax system.  Certain provisions of the U.S. tax code now encourage corporations to move jobs and money overseas.              For example, corporations may qualify for deductions and otherwise reduce their U.S. taxes for expenses that they incur to shut down U.S. plants and move their operations to other countries, and are even allowed to deduct interest on facilities they build offshore.  Corporations can also defer taxes on the income of their foreign subsidiaries, generating tax savings, and use foreign tax credits to reduce their U.S. taxes. These and other tax provisions can encourage the outsourcing of American jobs.  In addition, over the past ten years, some U.S. corporations with multinational operations have been reporting “staggering increases” in profits offshore, while reducing the taxes they pay to the United States.

To increase its understanding of these matters, the Subcommittee undertook a review of the 2004 tax repatriation provision.           


The Report makes the following findings of fact:


1.            U.S. Jobs Lost Rather Than Gained.  After repatriating over $150 billion under the 2004 American Jobs Creation Act (AJCA), the top 15 repatriating corporations reduced their overall U.S. workforce by 20,931 jobs, while broad-based studies of all 840 repatriating corporations found no evidence that repatriated funds increased overall U.S. employment.


2.            Research and Development Expenditures Did Not Accelerate.  After repatriating over $150 billion, the 15 top repatriating corporations showed slight decreases in the pace of their U.S. research and development expenditures, while broad-based studies of all 840 repatriating corporations found no evidence that repatriation funds increased overall U.S. research and development outlays.


3.            Stock Repurchases Increased After Repatriation.              Despite a prohibition on using repatriated funds for stock repurchases, the top 15 repatriating corporations accelerated their spending on stock buybacks after repatriation, increasing them 16% from 2004 to 2005, and 38% from 2005 to 2006, while a broad-based study of all 840 repatriating corporations estimated that each extra dollar of repatriated cash was associated with an increase of between 60 and 92 cents in payouts to shareholders.


4.            Executive Compensation Increased After Repatriation.  Despite a prohibition on using repatriated funds for executive compensation, after repatriating over $150 billion, annual compensation for the top five executives at the top 15 repatriating corporations jumped 27% from 2004 to 2005, and another 30%, from 2005 to 2006, with ten of the corporations issuing restricted stock awards of $1 million or more to senior executives.


5.            Only a Narrow Sector of Multinationals Benefited.  Repatriation primarily benefited a narrow slice of the American economy, returning about $140 billion in repatriated dollars to multinational corporations in the pharmaceutical and technology industries, while providing no benefit to domestic firms that chose not to engage in offshore operations or investments.


6.            Most Repatriated Funds Flowed from Tax Havens.  Funds were repatriated primarily from low tax or tax haven jurisdictions; seven of the surveyed corporations repatriated between 90% and 100% of their funds from tax havens.


7.            Offshore Funds Increased After 2004 Repatriation.  Since the 2004 AJCA repatriation, the corporations that repatriated substantial sums have built up their

offshore funds at a greater rate than before the AJCA, evidence that repatriation has encouraged the shifting of more corporate dollars and investments offshore.


8.            More than $2 Trillion in Cash Assets Now Held by U.S. Corporations.  In 2011, U.S. corporations have record domestic cash assets of around $2 trillion, indicating that that the availability of cash is not constraining hiring or domestic investment decisions and that allowing corporations to repatriate more cash would be an ineffective way to spur new jobs.


Repatriation is a Failed Tax Policy.  The 2004 repatriation cost the U.S. Treasury an estimated net revenue loss of $3.3 billion over ten years, produced no appreciable increase in U.S. jobs or research investments, and led to U.S. corporations directing more funds offshore.


Report Recommendation

The Report recommends against enacting a second corporate repatriation tax break due to the harms associated with a substantial revenue loss, failed jobs stimulus, and added incentive for U.S. corporations to move jobs and investment offshore.

For a copy of the report, select the following link:  

Download PSI.Repatriationreport.101011 


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