Allowing multinational corporations to bring home foreign profits at a dramatically reduced tax rate won’t result in anywhere near the loss of U.S. tax receipts that a congressional committee had estimated earlier this year, an industry-sponsored study concludes.
Research conducted by a former congressional economist for the lobbying group TechNet estimates that a bipartisan repatriation bill recently introduced in the Senate would cost the treasury $9.7 billion over a decade.
That’s a fraction of the $78.7 billion in tax revenue losses that the Joint Committee on Taxation said a repatriation break would result in over 10 years.
How a repatriation holiday is perceived to affect the deficit could well determine its fate in Congress this year. Repatriation opponents have seized on the JCT’s repatriation score earlier this year, arguing that the country can ill afford a budget-busting corporate tax break as Congress debates slashing federal programs.
The new study gives repatriation backers a different set of numbers to point to. Though the study was paid for by industry, repatriation supporters say the authors — one of whom worked for JCT for 15 years — gives it credibility.
“For some members, if a perception has taken hold that repatriation is a net revenue loser over time, we’re hoping the study will help them change that assumption," said John Horrigan, TechNet’s vice president for research.
But the report is unlikely to sway staunch repatriation opponents such as Sen. Carl Levin (D-Mich.), who released a report last month arguing that the last repatriation tax holiday cost taxpayers billions and failed to provide any measurable boost to the economy.
“Allowing companies to bring back profits overseas is simply an incentive for those companies to move their operations overseas. That’s common sense, but it’s also what the Joint Tax Committee said,” Levin said at a news conference last month.
He and other critics say that a one-time repatriation break motivates companies to shift money and operations abroad after it expires, knowing that Congress will eventually relent again and provide another holiday.
The latest study was conducted by tax policy consulting firm Quantria Strategies and was based, in large part, on the same methodology that JCT used to carry out its own repatriation score, its authors said.
Specifically, the analysis scores a repatriation proposal by Sens. John McCain (R-Ariz.) and Kay Hagan (D-N.C.) that would allow companies to repatriate foreign profits at an 8.75 percent rate, instead of the 35 percent statutory corporate rate. It would also give corporations the option to work toward a lower rate, capped at 5.25 percent, if they grow domestic payrolls by 10 percent.
According to the score, the McCain-Hagan legislation could spur firms to return an estimated $535 billion in foreign profits at a reduced corporate tax rate between 2012 and 2021. Without the tax holiday, it says, firms will bring back an estimated $60 billion in offshore earnings.
A separate repatriation measure by Reps. Kevin Brady (R-Texas) and Jim Matheson (D-Utah) is pending in the House.
More than $1 trillion is estimated to be currently parked overseas by U.S. multinationals.
According to the analysis, the McCain-Hagan bill would increase federal revenues by $5.5 billion in the first three years before incurring a total net loss of $15.2 billion during the full 10-year period.
The Quantria analysis projects only a “modest” shift in jobs and operations overseas by firms as a result of the tax holiday, said John O’Hare, an analyst who was part of the team that authored the report.
That is the major difference between it and the JCT methodology. The committee, said O’Hare, who worked for the congressional tax-scoring committee for 15 years, assumes a major shift in jobs and operations overseas in anticipation of another tax holiday, accounting for the bulk of its projected revenue losses.
This article first appeared on POLITICO Pro at 5:35 a.m. on November 2, 2011.
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