Kai Ryssdal: There’s a big debate in Washington right now — OK, there are many big debates in Washington all the time — but the one we’re talking about is over what to do with money American companies earn overseas. Right now, if those companies bring that money back into the United States, they have to pay taxes on it.
A group of high-tech energy and pharmaceutical companies wants to change that, they want to change the law. So today they launched a new website to help make their case for a temporary tax break on their foreign profits. The money would be used to create jobs here at home, they say. Thing is, we’ve tried this before, and that’s not what happened.
Marketplace’s Nancy Marshall Genzer reports.
Nancy Marshall Genzer: Congress passed the American Jobs Creation Act seven years ago. It temporarily slashed the tax U.S. companies paid when they brought home foreign profits. The rate dropped from 35 to about 5 percent.
C. Fritz Foley teaches finance at Harvard. He found more than half of every repatriated dollar went to something other than job creation.
C. Fritz Foley: The funds were used to pay dividends to shareholders, and to repurchase shares.
The companies pushing for another tax break say that’s true. But they say the money still made its way into the U.S. economy. Shareholders reinvested the dividends or spent the money.
Dean Garfield heads the Information Technology Industry Council, a trade group. He says right now U.S. firms are sitting on $1 trillion they’d like to bring back.
Dean Garfield: Where is that trillion dollars going to be spent? Is it going to be spent here in the U.S. or is it going to be spent abroad?
Economist Allen Sinai heads the research firm, Decision Economics. He says back in 2004, companies weren’t punished if they didn’t use their repatriated profits to create jobs. He says this time, Congress should hold their feet to the fire.
Allen Sinai: They can set conditions, set an accountability mechanism, which says you get this money only if you hire people.
The Obama administration wants any temporary tax break on foreign profits to be part of broader corporate tax reform that would eliminate other popular corporate tax breaks.
In Washington, I’m Nancy Marshall Genzer for Marketplace.
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