The campaign by U.S. Multinationals to sell Congress on a corporate tax break for their overseas profits has looked so far like tilting at windmills. Even backers of the so-called repatriation tax holiday have quietly acknowledged it’s a political stinker that faces long odds in the Senate.
That may be about to change. Senate sources tell Coins2Day that Sen. Chuck Schumer (D-N.Y.), the No. 3 Democrat in the chamber and a one-time opponent of the holiday, is testing his colleagues’ interest in marrying the proposal to a new infrastructure program.
The idea is to encourage corporations keeping a collective total of more than $1 trillion parked abroad to bring it home by temporarily lowering the tax rate to about 5% from 35%. The tax receipts from that holiday then would be dedicated to an infrastructure bank that would help fund new building projects.
While the repatriation holiday alone is a non-starter for most Democrats, pairing it with an infrastructure program could marshal labor support. It’s an approach backed by former Service Employees International Union president Andy Stern, who’s emerged as the most vocal proponent of the tax holiday on the left.
Details of the hybrid proposal remain undetermined. Schumer is floating the idea in the larger context of a new jobs agenda that Senate Democrats are hoping to forge as the economic recovery loses steam. The New York Democrat appeared on CBS’s Face the Nation on Sunday and talked up his party’s plans to roll out their jobs push this summer. Schumer pointed specifically to an infrastructure piece — and a payroll tax holiday — but didn’t mention the repatriation holiday, even when asked how he’d propose paying for the program. His office declined to comment.
The temporary tax break on foreign profits would likely provide a boon to federal coffers in the immediate term. If multinationals brought home $1 trillion, for example, the Treasury would collect $50 billion, precisely what President Obama proposed spending on an infrastructure bank last fall.
But the longer-term budget consequences of the move are a matter of contention. Detractors note that the Joint Committee on Taxation has projected the idea is a revenue loser, costing about $80 billion over ten years owing to steeply diminished receipts once the holiday ends. The holiday’s boosters dispute that figure and note that, besides, all stimulus measures come with a price tag.
The team of corporate heavyweights behind the lobbying push for the holiday — including Apple (AAPL), Cisco (CSCO), Duke Energy (DUK), Google (GOOG), Kodak (EK), Microsoft (MSFT), Pfizer (PFE), and Oracle (ORCL) — has shown some success softening up Democratic opposition recently. Last week, the centrist Democratic think tank Third Way hosted a breakfast on the topic that featured Sen. Kay Hagan (D-N.C.). “A repatriation holiday can encourage economic activity at a fraction of the cost of recent fiscal policy,” Hagan said in her prepared remarks.
But the issue’s rising profile has also attracted tough scrutiny, including of the performance of a similar holiday in 2005, detailed in a front-page New York Timesstory on Monday.
And within the Senate, the group has its work cut out. The last time such a proposal came up for a vote, as an amendment to the economic stimulus package in 2009, only 42 Senators supported it, and only eight of them were Democrats. With that history, the admittedly qualified interest of one of the chambers most senior, and forceful Democrats ranks as a potentially game-shifting development.