When Congress returns to DC, a giant corporate tax giveaway called “repatriation” will likely be at the top of the agenda. But we’ve already tried it.
A Politico report published on Tuesday detailed how Goldman Sachs alumni Steven Mnuchin and Gary Cohn — the Secretary of the Treasury and Chief White House economic advisor, respectively — are lobbying hard for repatriation in the Republicans’ tax reform agenda, which will likely be acted on in September, following the Congressional recess.
In the article, author Nancy Cook’s sources within the White House, Congress and the Treasury Department hint that repatriation, in which corporations with money stashed in overseas bank accounts are allowed a one-time lower rate as an incentive to “repatriate” American profits booked overseas, would involve reducing the corporate tax rate to 22 to 25 percent instead of the standard 35 percent rate.
U.S. corporations have roughly $2.5 trillion stashed in overseas, tax-free bank accounts, according to a September 2016 study from forecaster Capital Economics and Securities and Exchange Commission filings. The bulk of that $2.5 trillion is held by just a few multinational corporations, like General Electric (approx. $100 billion) Microsoft (approx. $100 billion), Apple ($91.5 billion), and Pfizer ($80 billion).
Other major multinationals with tens of billions in overseas accounts include some of the biggest names in the tech and pharmaceutical industries like Merck, Cisco, Johnson & Johnson, and IBM, according to the below chart from CNBC. As GritPost previously reported, Nike is also a major offender, with more than $12.2 billion booked in overseas tax havens.
It’s also important to remember that the last Republican administration already attempted a repatriation tax holiday and failed miserably. In 2004, former President George W. Bush signed the American Jobs Creation Act (AJCA) into law, which temporarily lowered the U.S. corporate tax rate to just five percent as a means of incentivizing multinationals to bring back U.S. profits booked overseas using devious (albeit legal) schemes like transfer pricing.
However, all that ended up happening as a result of the AJCA’s passage was that corporate executives enriched themselves even more while actually firing thousands of workers. In 2014, the Center on Budget and Policy Priorities chronicled what happened in the years following the AJCA:
Firms largely used the profits that they repatriated during the 2004 holiday not to invest or create U.S. jobs but for the very purposes that Congress sought to prohibit, such as repurchasing their own stock and paying bigger dividends to shareholders…The top 15 repatriating corporations repatriated more than $150 billion during the holiday while cutting their U.S. workforces by 21,000 between 2004 and 2007, a Senate Permanent Subcommittee on Investigations report found.
While such an idea may seem doomed from the start given a recent example of the proposal’s failure, repatriation still has the potential to make it to 45’s* desk. Unlike 45’s failed attempt to repeal and replace the Affordable Care Act (Obamacare), repatriation has bipartisan support from both Republicans and Democrats.
For example, Senate minority leader Chuck Schumer (D-New York) has floated the idea of repatriation to be used specifically to fund an infrastructure bank, most likely based on a harebrained study from liberal think tank Brookings. And in 2011, then-president Andy Stern of the Service Employees International Union (SEIU), which is one of the top funders of Democratic campaigns, voiced support for the proposal if it meant more jobs for workers in his union.
Congress is due to return from recess on September 5. As of this writing, no official repatriation bill has been filed in either the House or the Senate. Gary Cohn told Politico that passing tax reform legislation is a priority for the White House, with a goal of passing something by the end of 2017.
(*EDITOR’S NOTE: GritPost.com is now exclusively referring to Donald Trump as “45.” Please read our official statement on Twitter explaining the decision.)
Matthew P. Robbins is an economics reporter for Grit Post covering wages, budgets, and taxes. He lives in Chicago, Illinois with his husband and two cats.