While the proposed corporate tax holiday was dumped out of the debt ceiling agreement doesn’t mean it’s dead. What’s a corporate tax holiday you ask? Here’s a little history from Matt Taibbi of Rolling Stone:
For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.
Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.
Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.
Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.
Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs..
Now, there is a proposed bill that would lower the corporate tax rate to 5.25% for all profits that are brought back to the US. Needless to say it didn’t create one job in 2004 and it won’t this time either.
More from Taibbi:
For people interested in this story, I definitely recommend reading this Bloomberg article focusing on Cisco, one of the biggest lobbyers in favor of the tax holiday. This is a company whose CEO, John Chambers, wrote an editorial last October in the Wall Street Journal predicting that the tax holiday would generate a trillion dollars in repatriated earnings, money that Chambers insisted would outdo even Barack Obama’s stimulus as a job-creation engine:
The amount of corporate cash that would come flooding into the country could be larger than the entire federal stimulus package, and it could be used for creating jobs, investing in research, building plants, purchasing equipment, and other uses.
And yet: Chambers’s company, Cisco, would not commit to creating so much as a single job if the tax holiday is passed. As it is, the company has already committed to a wave of layoffs. When asked a question about Cisco’s plans w/regard to a potential tax holiday, the company’s spokesman, John Earhardt, declined to answer. From the Bloomberg piece:
It’s unclear whether any jobs would come from Cisco, which announced plans in May to shed an unspecified number of workers. Earnhardt, the spokesman, declined to comment on hiring plans for the company, whose customers include Verizon Communications Inc. (VZ) and AT&T Inc. (T)
There is little doubt that if this bill passes, Obama will sign it.