Although Congress was in recess for a district work period this week, a debate over whether to allow companies to repatriate earnings from their foreign subsidiaries at a reduced effective tax rate ahead of comprehensive tax reform played out in speeches, blog posts, and press statements.
Cantor: Promote investment in domestic economy
House Majority Leader Eric Cantor, R-Va., launched the latest round of discussions on March 21 when he urged lawmakers to pass a repatriation holiday before undertaking fundamental tax reform. In a speech at Stanford University, Cantor said finding an agreement on tax reform will take time, so in the interim Congress should act on a proposal that promotes domestic investment.
A temporary rate reduction on earnings held offshore, he said, would "allow U.S. multinational companies to bring back almost $1.2 trillion in overseas profits...so they can invest in our economy here at home."
A repatriation holiday was last enacted in the American Jobs Creation Act of 2004 (AJCA, P.L. 108-357), which provided for a one-time effective tax rate of 5.25 percent on foreign earnings brought back to the United States.
Mundaca: Stay focused on tax reform
Treasury Assistant Secretary for Tax Policy Michael Mundaca weighed in with the administration's objections two days later, writing in a March 23 Treasury blog post that "letting our eye off the ball of comprehensive tax reform in favor of a temporary measure of this kind would be a mistake."
According to Mundaca, "there is no evidence to suggest that [the repatriation provision in the AJCA] increased U.S. investment or jobs and it cost taxpayers billions."
Mundaca also argued that a tax break on repatriated earnings would benefit only "a small group of U.S. companies" and that paying for it without increasing the deficit would require a tax hike on other businesses.
"The tax treatment of overseas earnings could be considered as part of broader corporate tax reform, but...it would not be sensible to consider a repatriation holiday outside of that context," Mundaca wrote.
For his part, Treasury Secretary Timothy Geithner has also stated publicly that he would reject a repatriation holiday separate from comprehensive tax reform.
Congressional Republicans not unified
Although Cantor has not offered a formal legislative proposal, House Ways and Means Trade Subcommittee Chairman Kevin Brady, R-Texas, is currently drafting language to provide for a repatriation holiday, which he hopes to release in the coming weeks. According to House Republican staff, however, it is unclear if such a proposal will move forward in the committee given the lack of unified support among committee members.
Most notably, Ways and Means Committee Chairman Dave Camp, R-Mich., indicated to reporters through a spokesperson this week that he is focused solely on comprehensive tax reform, but may consider repatriation in the context of transition relief for broader tax reform if lawmakers were to enact such a proposal.
On the other side of the Capitol, an aide to Senate Finance Committee ranking Republican Orrin Hatch of Utah offered similar sentiments on the senator's behalf.
Corporate tax rate
During his speech, Cantor also called for a 25 percent corporate tax rate as part of fundamental tax reform. His comments echo those of Camp, who said March 16 that he would like to see a top federal tax rate of 25 percent for corporations and individuals, coupled with modifications of certain tax deductions and credits. (For prior coverage, see Tax News & Views, Vol. 12, No. 12, Mar. 18, 2011.)
Neither Camp nor Cantor has indicated that statutory language will be forthcoming.
Tax reform hearings continue
Congressional staffers continue to tell Deloitte Tax LLP that both the House and Senate taxwriting committees are planning to hold a series of hearings throughout 2011 on various aspects of tax reform, but that they are not working toward consideration of a particular proposal. Members are still in the beginning stages of exploring the specific issues that arise when reforming the entire tax code.
Those hearings will resume when lawmakers return to Capitol Hill the week of March 28. The Senate Finance Committee has scheduled a March 30 hearing that will address "whether tax incentives actually work, or whether they reward behavior that would have occurred anyway." House taxwriters will hold a hearing the same day to consider "government policies and actions that are impediments to job creation."
— Joel Deuth
Tax Policy Group
Deloitte Tax LLP
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