Multinational corporations lobbying for a "tax holiday" on repatriating overseas profits were hit with resistance this week when a top U.S. tax official said it would impede overall tax reform.In a blogon the Treasury Department website, Michael Mundaca, assistant secretary for tax policy, said the effort by multinationals to lobby the U.S. government to temporarily allow repatriation of overseas profits at a lower tax rate would distract efforts to enact a broader, more sweeping tax reform program.
Said Mundaca:
A narrow group of businesses has suggested that instead, our primary focus should be a temporary repatriation tax holiday - an idea tried a few years ago that gave a select group of U.S. multinational corporations a temporary, substantial tax break on their overseas profits. However, letting our eye off the ball of comprehensive tax reform in favor of a temporary measure of this kind would be a mistake.
Cisco and others are have been strong advocates of tax breaksfor multinational corporations repatriating overseas profits and investing them here. U.S. corporations have $1 trillion in profits stashed overseas to avoid a 35% tax hit from bringing it back into the U.S.
Texas Representative Kevin Brady, a senior Republican on the House Ways and Means Committee, plans to introduce a bipartisan bill for a repatriation holiday in the next few weeks, according tothis storyon Bloomberg.com.
Cisco exited its second fiscal quarter with $40.2 billion in cash but the U.S. cash balance is estimated at only $3.1 billion. Investment firms like Ticonderoga Securities believe, however, that over time Cisco will need to repatriate that cash in order to maintain the pace of its stock repurchase program, its acquisitions, and supportits new dividend payment.
Cisco may be waiting for a more opportunistic time to bring cash back to the U.S. Cisco shouldn't hold its breath for a tax holiday, according to Mundaca.
In his blog, he describeshow the 2004 tax holiday, which was designed to encourage corporations to invest in job creation here by lowering the tax rate on their overseas profits, was a failure. There was no evidence of job creation and it ended up costing taxpayers billions, he writes:
...most of the largest beneficiaries of the holiday actually cut jobs in 2005-06 - despite overall economy-wide job growth in those years - and many used the repatriated funds simply to repurchase stock or pay dividends. Today, when U.S. corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation.
Mundaca goes on to explain that the tax package agreed to last December allows companies to deduct the full amount of eligible capital investments made in the US in 2011 and 50% made in 2012, and that they benefit both large and small businesses, "not just those with operations overseas." The package could put more than $110 billion dollars in the hands of business over the next two years for investments guaranteed to be made in the U.S., at an overall cost of $20 billion, he writes.
In addition, the December package provides more than $110 billion of tax relief to more than 150 million workers, Mundaca blogs. And this is in addition to the business tax incentives in the Small Business Jobs Act of September, 2010, he adds.
So the time might soon be at hand for Cisco and other multinationals to bring the greenbacks home. It shouldn't wait for a holiday to do so.
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