Tax Holiday for Offshore Profits Rewards Bad Behavior

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Written by Eileen Appelbaum   
Friday, 05 August 2011 14:20

Matt Taibbi reports that the push for a tax holiday for profits parked in offshore tax havens is alive and well. According to Taibbi, lobbying has been intense for a bill sponsored by Texas Republican Kevin Brady (and co-sponsored by Utah Democrat Jim Matheson) called the Freedom to Invest Act. As with the “one-time” tax holiday in 2004, companies that offshored their profits would be rewarded with an effective corporate tax rate of 5.25 percent on the profits they repatriate.

As I wrote in June, hundreds of companies that license intellectual property – especially IT and pharmaceutical companies – can dramatically reduce their taxes and significantly increase earnings and share price through nefarious, but legal, ploys to park profits in offshore subsidiaries. Google, for example, uses the "Double-Irish-and-Dutch-Sandwich" to transfer the rights to intellectual property developed in the US – with early research funded by US taxpayers – to a subsidiary in low-tax Bermuda. Companies continue to owe taxes to the U.S. government on these overseas earnings - technically, the taxes have only been deferred. But the taxes don't come due until the profits are brought back to the U.S. - that is, repatriated. And companies do want to repatriate a good part of the roughly $1.43 trillion in profits they hold overseas.

The 2004 tax holiday – advertised as a one-time tax break – encouraged U.S. companies to increase the offshoring of profits earned on technologies developed in the U.S. in the hopes of just such another "one-time" break. This bad behavior should not be rewarded. The corporations would like us to think that bringing these profits home will lead to job creation. A better formula for good jobs at home is removing tax incentives to offshore these activities in the first place.