Letter of Support: Rep. Brady's Repatriation Tax Holiday, H.R. 1834
Dear Representative Brady,
On behalf of more than 1.7 million Americans for Prosperity (AFP) activists in all 50 states, I write to applaud your introduction of the Freedom to Invest Act, H.R. 1834. The bill reinstates temporarily reduced tax rates for companies repatriating earnings generated abroad. Such a policy has, in the past, encouraged a flood of reinvestment here in the United States. Today it is a much-needed plan to stimulate job creation and inject as much as a trillion dollars of capital into the American economy, funds that would otherwise remain locked out of the country.
Under current tax policy, companies that return foreign earnings to the U.S. must pay the difference between the foreign income tax and the U.S. corporate rate. But with the second-highest corporate tax rate in the world at 35 percent it’s no mystery why corporations allow their foreign earnings to sit in bank accounts overseas instead of reinvesting those earnings in the American economy. Recent estimates show that companies are holding well over a trillion dollars of accumulated earnings abroad. Easing this crushing corporate tax burden would provide strong incentives for American corporations to bring that money back to the United States instead of reinvesting it in jobs on foreign soil.
Past experience shows that a repatriation tax holiday can be an effective tool for easing burdens on American businesses and stimulating economic growth. In 2004, Congress passed the American Jobs Creation Act that temporarily reduced taxes on repatriated earnings. With this new law in effect, hundreds of companies seized the opportunity to bring their earnings home from abroad; that year more than $300 billion in additional earnings were brought back to the U.S. as a result. More importantly, survey results confirmed that American businesses put this money to use in the American economy by investing in capital and R&D, hiring and training employees, and paying dividends to shareholders. Your bill looks to repeat that success – economists predict similar measures today would help create more than 1.8 million jobs.
AFP has two reservations with your bill in its current form. First, AFP would like to see a permanent resolution to this problem instead of a temporary one. Temporary tax holidays of any kind actually increase complexity and uncertainty in the tax code, they risk distorting economic behavior and they may even encourage companies to waste resources lobbying for additional, future tax holidays. AFP strongly encourages you to support a permanent change to a territorial tax system. The overwhelming practical benefits of bringing hundreds of billions in capital back into the American economy outweighs these costs, but future work in this area should focus on making these changes permanent, eliminating these costs entirely.
Second, your bill adds an ultimately misguided “maintenance of employment” requirement as a condition for the tax deduction. One of the most frequently-cited criticisms of the last repatriation tax holiday came when just a handful of companies brought earnings back to the U.S. from abroad, claimed the temporary tax savings, but then actually reduced their workforces. Those ignoring the law’s wider economic benefits used this as a political cudgel against its supporters. Your bill attempts a remedy by slapping on a draconian $25,000 fine for every employee a credit-claiming company lays off.
This is simply bad economic policy. However they come about, job cuts are indeed unfortunate – especially in the current climate of high unemployment. But the reality is that they are sometimes necessary for a company’s long-term growth and survival. “Creative destruction” often stings in the short-term, but it is exactly what drives growth, innovation, and efficiency in a capitalist economy. Individual firm leadership is in the best position to make these admittedly tough decisions, not the government, and this bill hampers their flexibility to do what is sometimes in the best interest of their business and, ultimately, of the economy as a whole. AFP is opposed to this type of government micromanagement of business decisions. We urge you to consider removing the provision as the bill moves forward.
Nevertheless, the bill has already gained significant bipartisan support because it’s easy to recognize as a commonsense way to boost the American economy without resorting to bloated and inefficient government “stimulus” packages. One trillion dollars can do a whole lot of good for capital investment, job creation, and shareholders in this country. The impact would absolutely dwarf the Obama administration’s failed $787 billion government spending spree.
Americans for Prosperity is proud to support your legislation. I urge your colleagues to support its passage, and I look forward to working with you in the future.
Director of Government Affairs
Americans for Prosperity