US Corporate Repatriated Profits Tax Holiday Bill Introduced
Monday May 16 2011 | 06:58 AM

Several United States Congressmen, from both the Republican and Democrat parties, have introduced into the House of Representatives the Freedom to Invest Act of 2011 which, by temporarily lowering tax barriers, looks to encourage American companies with profits overseas to bring them back to the US for investment.

Currently, it is said that more than USD1 trillion in capital earned by American companies is kept overseas. The bill would provide those multinational companies with the option to repatriate those profits at a very favourable 5.25% tax rate for a period of two years.

The proposed legislation also includes a disincentive designed to discourage US multinationals from repatriating earnings at the lower rate, while also reducing their workforce. A company would pay a fine of USD25,000 for each job cut during the two years following the low-tax repatriation.

"Why, in this weak economic recovery, would we not act now to bring back USD1 trillion in stranded US profits back to America for investment?" questioned Kevin Brady, the vice chairman of the Joint Economic Committee and a senior Republican member of the House Ways and Means Committee. “This is about creating jobs, expanding US businesses and strengthening American companies.”

“Putting more private sector capital in the US economy will strengthen recovery efforts and help reduce the federal deficit,” said Jim Matheson, a Democrat co-sponsor of the bill. “Let’s do some good now, for American employers and for the US taxpayer, rather than do nothing by maintaining the status quo.”

However, the US Administration has already, previously, rejected the idea. In March this year, Michael Mundaca, the Assistant Treasury Secretary for Tax Policy, said that “letting our eye off the ball of comprehensive tax reform in favour of a temporary measure of this kind would be a mistake. In 2004, when the US enacted a repatriation tax holiday, the goal was to encourage US multinationals to pay bigger cash dividends from their overseas subsidiaries and use the cash to make investments in the US. Unfortunately, there is no evidence that it increased US investment or jobs, and it cost taxpayers billions.”