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A little over a month ago, our guest commentator, Dave Bernard, pointed out that a significant number of multinational companies have built up large stockpiles of cash in low-tax jurisdictions around the world. While these stockpiles had been noticed by various journalists, Dave explained that the persistence of these stockpiles could largely be explained by U.S. tax policy, which discourages companies from repatriating cash earned abroad due to the earnings impact of bringing the money back to the U.S.
Now, it seems, the mainstream financial outlets have caught onto this dilemma. Witness yesterday's story from the Financial Times (as well as two stories, here and here, from the day before). Likewise, in today's Wall Street Journal, John Chambers (CEO of Cisco) and Safra Catz (President of Oracle) have written an op-ed piece bringing attention to this issue as well.
Is the stage being set for a reprisal of the 2004 Homeland Investment Act? The Act provided for a temporarily reduced tax rate on cash being repatriated in connection with so-called "dividend reinvestment plans". The articles seem to suggest this is a real possibility. From yesterday's FT article:
The Homeland Investment Act confronted the issue in 2004 and provided a fix – an effective tax rate of just 5.25 per cent would be levied on repatriated cash. According to the Internal Revenue Service, 843 companies took advantage and repatriated $362bn. The legislation was passed in a stronger economy than today and advocates of another “tax holiday” believe the sluggish recovery is even more deserving.
The last time a tax holiday came to a vote was in the stimulus bill when Barbara Boxer, a Democratic senator from California, and John Ensign, a Republican from Nevada, proposed it. It is not clear that a similar initiative now would attract the same bipartisan support as the Boxer-Ensign proposal, which was narrowly defeated in the Senate. The administration is currently opposed but the US Chamber of Commerce is sounding out conservative “Blue Dog” Democrats about the prospects for legislation after the November elections. Caroline Harris, chief tax counsel at the chamber said: “If we’re talking about short-term growth we’re not looking at fundamental tax reform, we’re looking at something like this.”
If past is prologue, another repatriation holiday may be on the way.