If American corporations get their way, they will receive a
six-month tax reprieve allowing them to bring hundreds of billions
of dollars of overseas profits into the United States without
paying the normal tax rate. The Senate Finance Committee just
passed a bill, the Homeland Reinvestment Act, which will slash the
normal tax rate on bringing these profits into the United States
from 35 percent to a fraction of that amount ““ 5.25
percent.
Short of paying them to leave, there is nothing more the federal
government could do to persuade businesses to move overseas. As
such, the act is incredibly shortsighted.
Desperate to provide some sort of economic stimulus before
election season next year, Republican support for this bill is
widespread. In the short run, backers of the bill say it could lead
to these corporations bringing as much as $300 billion into the
United States economy. Sounds like a good idea right? Wait a
second; let’s not get distracted by all those dollar
signs.
If Congress approves the Homeland Reinvestment Act, the terrible
precedent of rewarding companies for moving their operations
overseas would be established. It would make it far more profitable
for companies to outsource overseas and wait for another tax
holiday to bring their profits back into the country instead of
staying in the United States and paying the regular tax rate.
Senator John Breaux (D-L.A.) told the Mercury News: “The
company that left Louisiana is going to pay a 5 percent tax on the
widgets they make overseas, and the company that stayed in
Louisiana is going to pay a 35 percent tax. If that isn’t an
incentive to leave, I don’t know what is.”
Additionally, there is no guarantee these corporations would
reinvest their foreign profits into building new domestic projects
or increasing domestic workforces. An amendment offered by Senator
Breaux that would have required domestic reinvestment of these
profits was defeated by Republican senators on Oct. 1. So even the
best reason for enacting the bill ““ that money would be
reinvested in the U.S. economy ““ is not compelling.
The Senate bill would also punish all of the American companies
that have been steadily bringing their foreign profits back into
the United States at the regular tax rate of 35 percent. These
companies would be slapped with a huge competitive disadvantage and
will likely be discouraged from repatriating their foreign profits
in the future. Discouraging this steady repatriation will have an
extremely negative effect on our economy down the road.
All of the traditional liberal arguments apply too: granting
this kind of tax holiday means the government will be missing out
on tens of billions of badly needed tax dollars ““ especially
given the now record-size of the projected budget deficit for the
next fiscal year. Also, the act amounts to nothing more than
welfare for wealthy corporations that don’t need it.
Despite Republican support, however, top conservative tax
officials in the Bush administration believe the tax break is a bad
idea. Wait a second! What? Conservatives opposed to a piece of
legislation billed as being pro-business?
That’s right, folks. The Homeland Reinvestment Act is such
a poorly designed policy that even conservatives oppose it because
it drastically interferes with the market and hurts the companies
that have been steadily repatriating their profits.
So why are the majority of Republicans in Congress still
supporting the act despite the opposition of Bush’s advisers?
For one, Bush’s advisers aren’t elected officials, so
they aren’t swayed by the same things Republican politicians
are moved by ““ namely corporate campaign donations.
The list of the act’s corporate supporters tells the
story: Hewlett-Packard, Intel, Sun Microsystems, and Dell, all
companies that have been moving their operations overseas for the
past few years. This bill will especially hurt California because
most of the companies involved are technology companies that have
large bases of operations in places like Silicon Valley.
One of the problems plaguing California’s economy and
causing unemployment to rise in our state has been the flight of
technology companies to foreign countries. Granting this tax
holiday only justifies their current strategy of moving overseas.
It justifies all of the layoffs. It justifies all of the site
closures. It justifies all of the unemployment. This act sends a
clear message: American corporations need not benefit America
““ they can receive all of the advantages without any of the
obligations.
Congress needs to look beyond the next election when the
Homeland Reinvestment Act comes up for a vote. Fortunately, the
companion bill in the House of Representatives has been reached an
impasse. Strangely, one of the best chances to kill the act lies in
the ability of Bush’s senior officials to convince their boss
to use his presidential veto power if the act does indeed pass
Congress.
Bitondo is a third-year political science and history
student. E-mail him at mbitondo@media.ucla.edu.