How can U.S. bring back $2 trillion its companies hoard overseas?
S&P Global (SPGI) is calling for a tax holiday on repatriated offshore earnings to put the $2 trillion in cash that U.S. companies have parked overseas to avoid paying taxes to work fixing the nation’s crumbling infrastructure.
A recently released report from the company proposes a zero percent tax for a period of three years, provided companies invest 15 percent of the funds in interest-baring infrastructure bonds. These funds would then be used to help rebuild the nations critical arteries such as road, bridges, tunnels, ports, railroads and more.
If half of the $2 trillion held overseas were brought back it would pump $150 billion into infrastructure projects, according to the report. Every dollar invested in transportation and infrastructure would add as much as $1.30 to the economy in a few years, and about 250,000 jobs would be created as a result of this one-time private stimulus, it found.
Microsoft (MSFT), Apple (AAPL), Google (GOOG) and five other tech firms now account for more than a fifth of the $2.10 trillion in profits that U.S. companies are holding overseas, according to a Bloomberg News review of the securities filings of 304 corporations.
S&P Global Ratings found in May that the top 15 companies that disclose their cash holdings by region hold 83 percent of their cash overseas, up from 70 percent in 2011.
The need for a solution is clear. The American Society of Civil Engineers estimates the U.S. will need to invest $3.6 trillion in infrastructure by 2020, with the non-profit giving the nation’s schools, roads and transit systems poor grades.
Some tax experts, however, are skeptical of S&P’s proposal.
According to the Center on Budget and Policy Priorities, the tax holiday idea has been tried before and is a proven policy failure.
Indeed, after a 2004 tax holiday, 58 of the companies that benefitted from the move slashed nearly 600,000 jobs.
“It would be more worthwhile to fund infrastructure through broad-based taxes such as the gas tax,” emailed Kyle Pomerleau, director of federal projects at the Tax Foundation, a nonpartisan tax research group.
Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, said he was troubled by what he called “the fiscal gimmickry that makes this look like free money when there is no free money, ever.”
The conservative Heritage Foundation has also argued that a repatriation holiday would do little to encourage investment or job creation. Further, if U.S. companies know they can get breaks on their foreign profits every few years, there’s an argument to be made that corporations will find ways to make sure more of their profits are classified that way.
Reforming the tax code is a key issue in the presidential election.
But like everything else in the world of taxes and politics, that’s easier said than done.
“We want to be clear that this is only a first step,” said Beth Ann Bovino, the chief U.S. economist at S&P Global.
“What’s needed is a comprehensive tax reform,” she said.”If this comes about with no comprehensive tax reform, we will be back where we started in a few years.”