Corporate Welfare Runs Amok

"...a government-sponsored opportunity for American multinationals to bring their foreign profits back to the United States at a puny tax rate of 5.25 percent, compared with the normal corporate rate of 35 percent.

Johnson & Johnson intends to repatriate $11 billion. And that is just the beginning of what is shaping up to be an unprecedented government giveaway.  The drug giant Schering-Plough has announced a coming $9.4 billion repatriation... Pfizer is considering whether to repatriate $29 billion in untaxed foreign profits; Intel has $6 billion [eligible for repatriation]...

The Homeland Investment Coalition, a roster of dozens of America's largest corporations, lobbied vigorously -- and successfully -- for a tax holiday before deigning to repatriate their overseas profits.

Congress's ostensible purpose for allowing the holiday is to unleash a flood of money for job creation, hence the name of the law that includes the holiday -- the American Jobs Creation Act of 2004. But few of the approved uses for the repatriated funds -- such as debt redemption, advertising and a catchall category of ''financial stabilization'' -- will lead directly, if at all, to more jobs. One approved use -- the ability to spend the money to buy other companies -- would be more likely to create layoffs, as corporate acquisitions usually do.

Companies can also use the money to help pay legal liabilities, which could prove to be a big boon for companies like the drug maker Merck, which is sitting on some $15 billion in untaxed foreign profits and faces an estimated $18 billion in potential claims arising from the Vioxx debacle. Multinationals cannot use the repatriated profits to pay dividends to shareholders, buy back their own stock or pay executives. But because companies have a lot of flexibility in financing their activities, they will generally be able to use the money as they see fit while still meeting the letter of the law.

So the tax holiday blesses rather than curbs tax avoidance and is structured to encourage little if any new domestic economic activity. It establishes a horrible precedent by encouraging companies to leave profits abroad in anticipation of future holidays...

All it will really do is what the drafters probably intended all along -- further erode the nation's corporate tax base and impugn the system's integrity, in that way building a case for eliminating corporate taxes altogether. That is a lousy way to make policy. Reforms to the corporate tax system must be debated on their merits, not under cover of some phony label like 'job creation'."

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