Blue Dogs backing corporate tax holiday

Oct 12, 2011
In The News
By Vicki Needham

House Blue Dogs are on board with a temporary corporate tax holiday they argue will boost economic growth.

The group joined a growing bipartisan chorus pressing the congressional deficit-reduction committee to give U.S. multinational corporations a tax break in exchange for investing at home.

"As you consider tax reform, we urge you to include a temporary change to the tax code that allows businesses to repatriate money trapped overseas as part of reform or as a bridge to comprehensive reform," according to a letter obtained by The Hill that was sent Wednesday to the congressional deficit-reduction committee.

Although there's still plenty of skepticism about the idea, repatriation is gaining support on Capitol Hill, where lawmakers are seeking the best avenue to pass a bill, including one that goes through the supercommittee.

The Blue Dog Coalition is backing a bipartisan bill sponsored by Reps. Jim Matheson (D-Utah) and Kevin Brady (R-Texas) that would remove a barrier keeping upward of $1.4 trillion in American private-sector money overseas, which is similar to a Senate bill introduced last week by Sens. Kay Hagan (D-N.C.) and John McCain (R-Ariz.).

Blue Dogs said the letter that the House bill will "entice American companies selling their goods and services abroad to bring earnings back to the United States for investment."

"Experts agree that temporarily lowering tax barriers will bring earnings back home, and therefore strengthen our economy," the Blue Dogs wrote.

"We believe that bringing private sector capital back to the U.S. will strengthen recovery efforts and help reduce the federal deficit," they said.

"Therefore, we urge you to consider this as part of your larger efforts."

The Hagan-McCain bill would let multinationals repatriate funds at an 8.75 percent rate — or 75 percent lower than the current top corporate rate of 35 percent.

Companies could also push that rate to as low as 5.25 percent if they add onshore jobs in 2012. To get the lowest rate, companies must increase their number of employees subject to the payroll tax by 10 percent. ??The 5.25 percent figure, 85 percent below the top corporate rate, is the same rate used in a corporate tax holiday enacted by Congress in 2004.

The rate also is the lowest that can be reached in the Matheson-Brady measure.

Proponents of another tax holiday say the idea could get the ball rolling on broader tax reform, which is a possible subject that could be tackled by the supercommittee.

The Hagan-McCain and Brady-Matheson measures includes penalties for corporations that repatriate earnings and reduce their workforce.

Critics of the 2004 holiday, including Democratic Sen. Carl Levin (Mich.) argue that the plan won't work and that, according to a report he released this week, the tax break has the opposite effect of supporters arguments for it.

Opponents also argue that the cost is too high — the price tag is running about $78 billion over a decade, according to the Joint Committee on Taxation.

Meanwhile, Blue Dogs point to a study by Douglas Holtz-Eakin, former director of the Congressional Budget Office, showing a 4 percent economic expansion and the creation between 1 million and 4 million jobs.

House Majority Leader Eric Cantor (R-Va.) is among the idea's most prominent supporters.

Still, many — including the White House and House Ways and Means Chairman Dave Camp (R-Mich.) — are urging caution on any plan to provide a large tax break as a separate entity rather than as part of sweeping effort to overhaul the tax code.