Repatriation Holiday Battle Continues

The debate over a repatriation holiday heats up.  Both House and Senate members put forth bills last week to allow corporations to repatriate offshore funds, and Senator Carl Levin released a report Monday calling a corporate holiday enacted in 2004 a failure. Here's a summary.


Pro-repatriation


Last week, the House and Senate put forward two separate bills to allow corporations to repatriate offshore funds. The measures offer slightly different tax breaks (see here):

• A House bill would allow corporations to repatriate offshore funds at a 5.25 percent rate, the same rate as the 2004 holiday. Companies would also face penalties if they shed jobs while taking advantage of the holiday. House Blue Dogs (more centrist Dems) backs the bill. Read more here.
  Bill Sponsors: Reps. Kevin Brady (R-Texas) and Jim Matheson (D-Utah)
• A Senate bill would bring the tax rate down to 8.75 percent, with companies that hire workers getting the chance to pay as little as 5.25 percent. The Senate legislation also includes disincentives for businesses to eliminate jobs.
  Bill Sponsors: Sens. Kay Hagan (D-N.C.) and John McCain's

According to the Joint Committee on Taxation, the price tag for a tax holiday is about $78 billion over a decade, in part because companies would shift more profits offshore after a holiday and hold them there in anticipation of another round. But supporters of repatriation argue that the injection of funds would stimulate jobs and the ailing economy. 

Anti-repatriation

Some members of Congress disagree. Senator Carl Levin released a report last week showing that the "corporations that relied the most on the 2004 holiday shed jobs in the aftermath and didn’t quicken their pace of investment in research and development." His report is based on publicly available data and surveys of 20 companies that show they repurchased stock and raised executive compensation after a 2004 tax holiday rather than increasing research spending or adding jobs.

Findings in Senator Carl Levin's report: 

• Companies brought back $312 billion that qualified for the preferential rate, according to the IRS.
• Companies that repatriated the most money accelerated stock buybacks. Twelve of the top 15 repatriating companies increased stock repurchases from 2004 through 2007.
• The top 15 repatriating corporations reduced their overall workforce by more than 20,000 jobs after bringing back to the U.S. more than $150 billion in 2004 at the lower tax rate.  A “broad-based" studies of all 840 repatriating corporations found no evidence that the tax holiday increased U.S.-based payrolls.
• Oracle used repatriated money to buy Peoplesoft Inc. and reduce its workforce by thousands of employees, while counting the remaining Peoplesoft workers as a net increase in overall employment (7,500 jobs).
• DuPont returned $7.7 billion but the company’s U.S. job levels fell from 34,300 workers in 2004 to 32,800 in 2007. Meanwhile, DuPont repurchased $3.5 billion worth of its shares in 2005 alone, after buying back less than $1 billion in the three years leading up to the tax holiday. DuPont said Tuesday that it has since boosted payrolls above 2004 levels in the U.S., adding more than 1,000 workers in 2011 alone through expansions in Iowa, Ohio, North Carolina, South Carolina and Tennessee. DuPont, breaking from many of its corporate peers, is also not pushing for another tax holiday.
• IBM brought back $9.5 billion from overseas and proceeded to eliminate nearly 13,000 U.S. jobs in the years that followed. 
• Pfizer brought back $35.5 billion, more than any other company, then cut 11,748 jobs. Other companies, including Microsoft, PepsiCo and Procter & Gamble, created jobs after bringing home billions.
• Most of the $312 billion that was brought home by multinationals during the last holiday flowed from low tax or tax haven jurisdictions.
• HP ranked third on the list of companies, with repatriated funds totaling $14.5 billion and the number of jobs shed between 2004 and 2007 totaling nearly 9,000, according to the report. However, HP underwent an enormous restructuring during that period after its merger with Compaq.
• Intel brought home nearly $6.2 billion in foreign profits and slashed some 2,500 jobs between 2004 and 2007.
• Microsoft, which repatriated a total of $780 million, added 10,859 jobs between 2004 and 2007, according to the report.

A study last month by the Chamber of Commerce estimated that repatriated dollars could increase the gross domestic product by roughly $360 billion and create some 2.9 million new jobs.

But in an interview with "60 minutes" on Sunday, Obama jobs czar and General Electric CEO and Chairman Jeff Immelt, conceded the 2005 tax holiday failed to create a hiring spree among corporations that took advantage of the reduced tax rate.

“When it happened last time, it didn't,” Immelt said. “So there’s plenty of evidence that says that I'm not right about that. In other words, do I know how many jobs it's going to create? I don't. But it can't intellectually be any good to anybody to have $1.2 trillion outside the U.S.”

Gang of 12 Updates

Lacking Transparency
The Gang of 12 is being criticized for lack of transparency (here). Aside from the three public meetings the committee held in September, the calendar for the month of October is blank, with no hearing scheduled. While they are not meeting publicly, the members are meeting behind closed doors.

Deadlock May Prevent Deal
While the members of the Gang of 12 are secretive about their talks, some lawmakers, aides and lobbyists closely tracking the committee are increasingly skeptic and pessimistic that the panel will be able to meet its goal of at least $1.2 trillion in deficit savings over the next 10 years as they are running up against a familiar deadlock over taxes and cuts to major programs like the Medicare and Medicaid health care programs for the elderly, poor and disabled (here).

But the good news is that Democrats are more insistent on revenues now (here). "There's been no movement on revenues and I'm not sure the Democrats will agree to anything without revenues," a Democratic lobbyist who required anonymity to speak candidly (here).

Deadline is "Phony" 
According to Jonathan Bernstein of the Washington Post, the Thanksgiving deadline is a bit
"phony."  According to Bernstein, "nothing happens after the deadline that can’t be undone if and when Congress chooses to do so. Even if legislators actually let sequestration eventually begin, they can always go back and undo cuts, either selectively or entirely, or they can cut a deal then for everything going forward." Therefore, Bernstein writes that it’s "certainly possible that stories of deadlock are themselves trial balloons to test whether one or the other side would prefer a deadlock to making a deal."

Sounds like what Ellen Nissenbaum said last week on the Tides/Greenlining conference call.

Secrets Not So Secretive
John Judson of the Atlantic Wire, writes that the secrets of the Super Committee is not so secret. His article outlines what we've learned so far:

August: The committee was created as part of a deficit reduction deal between Republicans and Democrats to reduce the deficit by at least $1.2 trillion. Campaign finance details about what groups and organizations were bankrolling the Super Committee members began being circulated.

Sept 30: The committee beings meeting in secret As Washington's curiosity heightened, the legislators stayed silent though many suspected they were meeting, as Noel Brinkerhoff at All Gov reported. Early calls for transparency came from John Wonderlich at the Sunlight Foundation, a watchdog group, who said members were meeting in secret and subsequently "denying that they’re holding meetings, in order to avoid longstanding requirements that those meetings be public"

October 2: A grand bargain is ruled out Politico's Manu Raju and John Bresnahan get the scoop from sources from Republican Senator Jon Kyl. They say a deal in the ballpark of $3 trillion or $4 trillion can't be reached because Republicans don't want a significant tax hike and Democrats don't want significant reductions in Social Security and Medicare.

After four private meetings and two public hearings, Kyl is convinced that the three House Democrats on the supercommittee — Reps. Jim Clyburn of South Carolina, Xavier Becerra of California and Chris Van Hollen of Maryland — are not interested in a deal on taxes because of their demands for more revenue, sources say. Kyl has not ruled out taking up tax reform as part of any supercommittee proposal, although he knows time is running short on those deliberations.

October 5: A deal is likely!  Sources told Reuters that Republicans were "open to talking about revenue increases" and members of the committee hinted that a deal could be made.

Democrat, Senator John Kerry, hinted that an outline for the negotiations had been sketched out. "I don't want to discuss the framework. I don't think that's constructive," he said, adding, "We're obviously meeting a lot. We're going to become even more intense in those meetings now."

October 7: Committee members receive influx of cash It pays to be on the Super Committee. Susanna Kim at ABC News reports that the members "received over $83,000 from lobbying groups in the three weeks after being appointed to make $1.2 trillion in budget cuts."

October 10, a deal is unlikely! The Super Committee is gridlocked, reported Andrew Taylor at The Associated Press.

Democrats won't go for an agreement that doesn't include new tax revenue; Republicans are just as ardently antitax. The impasse over revenues means that Democrats won't agree to cuts to popular entitlement programs like Medicare ...

"There's been no movement on (new) revenues, and I'm not sure the Democrats will agree to anything without revenues," said a Democratic lobbyist who required anonymity to speak candidly.


October 10: Committee may slash Medicare Donna Smith at Reuters gets the scoop from a lobbyist who "has been following" the deliberations:

Medicare supplemental health plans, popular among politically powerful retirees, could come under the budget knife... The so-called "Medigap" insurance plans shield the elderly -- many living on fixed incomes -- from costly deductibles and other expenses not covered by the traditional fee-for-service Medicare healthcare program. "This one is clearly on the table," said a lobbyist...

Glaring Inequality

Dave Gilson and Carolyn Perot of Mother Jones recently published 11 charts that show inequality in America. Three of them are listed below.

The Top One Percent

Americans in the top 1 percent is an elusive bunch. Recently, more attention is given to this group. Below are some highlights of the top 1 percent: who they are, what they do, how much wealth they control, and how they earn their wealth?

• The top 1 percent of American households had a minimum income of $516,633 in 2010 (figure includes wages, government transfers and money from capital gains, dividends and other investment income). More here and here. 
• The richest 1 percent don't all work on Wall Street. Thirty-one percent (31%) of them are non-financial-sector executives, 15.7% are medical professionals, and 13.9% are financial professionals. More here.
• The vast majority of wealth held by the top 1 percent come from stocks, securities, business equity and other investments. The top 1 percent own nearly half of all stocks and mutual funds, and more than 60% of both financial securities and business equity. More here and here and here. 

• But while income of American wealthiest skyrocketed in the past three decades, most Americans' incomes stagnated. The bottom 60 percent earned a maximum of $59,154 in 2010, the bottom 40 percent earned a max of $33,870, while the bottom 20 percent earned just $16,961 at maximum. More here and here. 
•  While the top 1 percent own the majority of assets - stocks, securities, business equity and other investments - the poorest households were experiencing declines in net worth even before the recession hit. In 2007, the bottom 20 percent of households had an average net worth of –$13,800 in 2007, which fell further to –$27,200 in 2009. More here. 
• Average wealth of the bottom 80 percent was just $62,900 in 2009 — a dropoff of $40,900 from 2007, meaning the wealthiest 1 percent held an average of 225 times the wealth of the average median household in 2009 — a ratio that was 125 in 1962. More here.

See research below for more information:

• Edward Wolff, Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007 (examined the proportion of assets held by the top 1 percent in 2007, those whose minimum net worth was $8,232,000 or more).
• Bakija, Cole, and Heim, Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data.
• Center for American Progress, The Legitimate Gripes of the Other 99 Percent.
• Vanity Fair, Of the 1%, by the 1%, for the 1%
• Charts provided by Mother Jones