Ten major U.S. corporations, including big banks Citigroup and Bank of America, laid off workers after enjoying a tax holiday in 2004-2005 that had been billed as a form of economic stimulus, said a report released on Tuesday.
With large multinational companies today pressing Congress for another tax holiday, the Institute for Policy Studies reported that the last one did not fulfill its rosy promises for hundreds of thousands of U.S. workers.
Fifty-eight corporations that accounted for 70 percent of overseas profits repatriated under the 2004-2005 tax break collectively saved $64 billion in taxes, then cut 600,000 jobs through layoffs, the report said.
It is the latest in a series of warring studies on whether U.S. multinationals should be allowed, for the second time, to bring home hundreds of billions of dollars in overseas profits at a bargain-basement tax rate.
Large companies are lobbying again for such a tax break, which would let them repatriate much if not all of an estimated $1.5 trillion in overseas profits for well below the full 35 percent corporate income-tax rate.
Legislation in the Republican-controlled U.S. House of Representatives would let them repatriate those profits at 5.25 percent, the same tax rate given to them under a similar tax holiday during the Bush administration.
Just as they are doing now, companies six years ago said that the repatriation tax break would boost jobs and the economy. But the institute said this did not happen, as earlier academic studies have also found.
"History shows that many 'tax holiday' companies use repatriated profits to reward executives and other shareholders, then lay off workers," said Chuck Collins, co-author of the report from the left-leaning institute. "Corporate tax holidays have resulted in precious few U.S. jobs."
Besides Citi and Bank of America, the report focuses on technology group Hewlett-Packard, drugmakers Pfizer and Merck, and manufacturers Ford Motor and Caterpillar.
Telecom giant Verizon Communications and chemical makers Dow Chemical, and EI Du Pont De Nemours are also singled out as corporations that "benefited the most financially from the tax holiday and slashed the most jobs."
The U.S. Senate Permanent Subcommittee on Investigations is looking into the results of the 2004-2005 tax holiday, as well. A report from the panel is expected within a few weeks, its chairman, Democrat Carl Levin, told Reuters last month.
In 2004-2005, 843 corporations brought home $362 billion in overseas income at a 5.25 percent tax rate. Analysts said that experience encouraged companies to park more income overseas, allowing them to postpone indefinitely paying any U.S. income tax on it, as long as the money stays abroad.
With the economy struggling and new government stimulus hard to come by, a well-financed corporate lobbying campaign—organized under the WIN America coalition—is arguing that another tax holiday would boost the economy.
As reported by Reuters in August, the coalition has hired dozens of former congressional tax-writing committee staffers.
The New Democrat Network, a centrist group, issued a report in August saying an overseas tax repatriation holiday would bring new net revenue into the U.S. Treasury.
At a time of soaring government deficits, the Joint Committee on Taxation, a nonpartisan congressional research arm, has estimated that a tax holiday, like the one proposed in the House and favored by WIN America, would eventually cost taxpayers about $78.7 billion over the next decade.
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