Rhetoric vs. Reality
Setting the Record Straight on Repatriation
The 2004 repatriation legislation failed to impact the economy
The simple truth is that the 2004 legislation provided a major boost to the US economy. After 2004, when repatriation language was included in the American Jobs Creation Act, worldwide American businesses brought home more than $312 billion that would not have been invested here otherwise, including:
- $73 billion to create or retain jobs,
- $75 billion to finance new capital spending, and
- $39 billion to pay down domestic debt.1
Here are just a few examples of how American businesses used the funds:
- Oracle used repatriated funds to outbid foreign competitors to acquire two U.S. companies – one in California, the other in Minnesota. Oracle’s acquisition increased jobs at both firms, and helped keep the companies and their intellectual property in the United States.
- Qualcomm brought back $500 million, which was used to assist in new acquisitions and the hiring of 8,200 employees. They also invested millions into their U.S. infrastructure, using repatriated funds to expand offices in California, North Carolina, and Nevada.
- Duke Energy brought back over $500 million in repatriated funds, which was directed towards wages, investments in capital projects, and expansion of its infrastructure and transmission/distribution networks.
- Adobe injected over $500 million into the U.S. economy when they repatriated global earnings in 2004. The money was used for hiring new employees, completing acquisitions of smaller companies, and providing seed money for these companies to enter untapped markets.
- Cisco used repatriated funds to create 1,200 R&D (mostly engineering) jobs. Since the 2004 law went into effect, Cisco has added 8,500 jobs in the United States.
In addition, the 2004 tax change produced more than $34 billion in federal revenues, including more than $16 billion in direct corporate income tax revenues and nearly $18 billion in personal income tax revenues from the additional jobs and higher wages supported by the reform.2
When legislation passed in 2004 temporarily allowing American companies to repatriate global earnings at a reduced tax rate, corporations fired workers instead of hiring them.
Almost a quarter of the funds brought back as a result of the 2004 tax change – 23 percent – went towards hiring and training of U.S. employees.3 Some companies hired new workers, others invested in their American facilities, and still others made decisions to put their companies on more secure financial footing. Ultimately and regardless of their individual methods, American businesses injected over $300 billion into the American economy, spurring growth and increasing capital.
American companies invest abroad and park money overseas in order to avoid paying U.S. taxes.
With overseas markets representing 75% of the world’s buying power, American companies must invest abroad to keep our country competitive. It is estimated that in 2007, 38% of sales for S&P 500 companies was derived from foreign activities, and it’s even higher for innovative technology companies, with overseas business accounting for between 50% to 90% of their sales.
Under our current tax system, if companies bring $100 home, they are left with only $65 to invest after paying taxes. American companies therefore find it too costly to bring their revenue home, leaving it trapped overseas where it benefits other countries instead of being invested in America.
The National Bureau of Economic Research found that when a temporary repatriation holiday was undertaken in 2004, for every dollar of repatriated cash, companies gave their shareholders nearly the entire dollar.
In fact, the companies that chose to bring money back to America used the revenue in a number of different ways. 23% of the repatriated funds went towards hiring and training of U.S. employees.4 Of the $312 billion that was repatriated in 2004, $73 billion was used to create or retain jobs; $75 billion was used to finance new capital spending, and $39 billion was used to pay down domestic debt.5 Cisco, for example, used $1.2 billion in repatriated funds to create 1,200 R&D engineering jobs in the United States. Regardless of how the money was disbursed, every company that brought its overseas income home paid taxes to the federal government, helping to fund key domestic priorities, and injecting over $300 billion into the American economy.
The Joint Tax Committee says that repatriation reform would create a loss of revenue for the United States.
The proposal would increase rather than reduce federal government revenues. The money held overseas simply isn’t coming back if tax rates for bringing back global earnings remain at the current levels.
But if tax rates are lowered, companies will bring the funds back and generate revenues for the treasury. It would also boost economic activity in the United States.6 In 2009, leading economist Dr. Allen Sinai estimated that federal tax revenues would increase by about $82 billion, and that the taxes paid on incremental repatriated earnings would generate up to $30 billion in revenue, helping to reduce America’s deficit.7
If companies don’t spend repatriated money directly on hiring new workers, then it won’t help the U.S. economy.
Hiring new American workers is just one of the ways worldwide American businesses can use their global earnings to strengthen our economy. Other ways include investment in equipment, research and development, or domestic expansion. A 2009 economic analysis by former Clinton Administration official Robert Shapiro found that implementing a temporary reduction in corporate taxes on repatriated global earnings, similar to the measure passed in 2004, would produce nearly $45 billion in new federal revenues, including more than $22 billion in direct corporate tax revenues on the repatriated funds and another $22 billion in personal income tax revenues on the additional wage income.8 Another analysis by leading economist Dr. Allen Sinai predicted that if repatriation was passed in 2009, the federal budget deficit could be reduced by $47.6 billion a year over five years and increase real GDP by an average of $62 billion a year over five years.9
1. R. Shapiro, A. Mathur, “Using What We Have to Stimulate the Economy: The Benefits of Temporary Tax Relief for U.S. Corporations To Repatriate Profits Earned by Foreign Subsidiaries,” January 2009.
2. R. Shapiro, A. Mathur, “Using What We Have to Stimulate the Economy: The Benefits of Temporary Tax Relief for U.S. Corporations To Repatriate Profits Earned by Foreign Subsidiaries,” January 2009.
3. J. Graham, M. Hanlon, T. Shevlin, “Barriers to Mobility: The Lockout Effect of U.S. Taxation of Worldwide Corporate Profits,” Fig. 2, p.35, October 27, 2008.
4. J. Graham, M. Hanlon, T. Shevlin, “Barriers to Mobility: The Lockout Effect of U.S. Taxation of Worldwide Corporate Profits,” Fig. 2, p.35, October 27, 2008.
5. R. Shapiro, A. Mathur, “Using What We Have to Stimulate the Economy: The Benefits of Temporary Tax Relief for U.S. Corporations To Repatriate Profits Earned by Foreign Subsidiaries,” January 2009.
6. G. Schink, L. Tyson, “A Temporary Reduction in Taxes on Repatriated Profits for the Purpose of Economic Stimulus and Investment in National Priorities,” January 2009.
7. A. Sinai, “Macroeconomic Effects of Reducing the Effective Tax Rate on Repatriated Foreign Subsidiary Earnings in a Credit- and Liquidity-Constrained Environment,” p.14, January 30, 2009.
8. R. Shapiro, A. Mathur, “Using What We Have to Stimulate the Economy: The Benefits of Temporary Tax Relief for U.S. Corporations To Repatriate Profits Earned by Foreign Subsidiaries,” January 2009.
9. A. Sinai, “Macroeconomic Effects of Reducing the Effective Tax Rate on Repatriated Foreign Subsidiary Earnings in a Credit- and Liquidity-Constrained Environment,” p.11, January 30, 2009.