WASHINGTON – A temporary tax holiday for U.S. companies to repatriate offshore profits would cost the government $95.8 billion in revenue over the next decade, according to the Joint Committee on Taxation, a nonpartisan scorekeeper for Congress.
Lawmakers occasionally talk about a repatriation tax break as a way to pay for spending such as replenishing the Highway Trust Fund. The estimate shows the difficulty of making such an argument.
According to the estimate, dated June 6, repeating the holiday enacted in 2004 would generate $19.6 billion over the first two years and then start costing the government money.
“A second repatriation holiday may be interpreted by firms as a signal that such holidays will become a regular part of the tax system, thereby increasing the incentives to retain earnings overseas rather than repatriating those earnings and to locate more income and investment overseas,” JCT Chief of Staff Thomas Barthold wrote in the estimate.
Under the U.S. tax system, companies owe the federal government based on their worldwide income. They can defer taxes on income earned overseas until they repatriate it, giving companies an incentive to book profits outside the U.S. and stockpile them there.
As of earlier this year, 307 large U.S.-based companies held $1.95 trillion in accumulated profits outside the U.S., up 11.8 percent from a year earlier. Among the companies with the largest stockpiles are Apple Inc., Microsoft Corp. and Pfizer Inc.
U.S. companies, including Cisco Systems Inc. and Oracle Corp., mounted a 2011 lobbying push for a tax holiday. That effort fell short, impaired in part by a JCT estimate at the time showing that it would increase budget deficits by $78.7 billion over a decade.
A one-time tax break has a different budgetary effect than a lower tax rate on repatriations if paired with structural changes to the international tax system. In that case - as proposed in different forms by President Barack Obama and Republican Rep. Dave Camp - there can be a temporary increase in revenue that could be used for spending or other items.
The estimate was prepared for Sen. Orrin Hatch of Utah, the top Republican on the Finance Committee. He and Chairman Ron Wyden, an Oregon Democrat, issued a statement on June 5 saying they wanted to avoid “diverting” any revenue from repatriation to issues outside of a broad revamp of the tax code.