Why tax plan might not put US firms’ overseas cash to work
WASHINGTON: The House Republican tax bill is meant to send trillions in corporate profits overseas pouring back home and, in the process, give the US economy a healthy boost.
It may be more likely to land with an economic thud and provide a windfall to tax attorneys scouring the Byzantine bill for tax breaks on behalf of corporate clients. “Every tax lawyer in town is going to get a new car,” says Martin Sullivan, chief economist for Tax Analysts and a former US Treasury Department economist.
The bill is designed to solve a vexing problem: Many big US companies earn fat profits overseas. But they don’t want to return the money to the United States because they would have to pay the hefty 35 percent US corporate tax. So an estimated $2.6 trillion remains stranded abroad.
“You don’t have to pay US tax as long as you leave it offshore,” says Kimberly Clausing, an economist at Reed College. “But your shareholders get upset if you leave it there forever.”
Enter the House Republican tax plan. Besides reducing the US corporate tax rate to 20 percent, the plan would let companies repatriate their existing overseas profits at much lower rates - 12 percent for profits that have been kept in cash and 5 percent for profits from investments that are hard to sell.
Once the bill took effect, most overseas profits could be returned to the United States tax-free. Some very high overseas profits would incur a US tax of 10 percent.
“For a lot of these companies you are talking about tens of billions, or in the case of Apple, hundreds of billions of dollars,” says Scott Kessler, analyst with CFRA Research, referring to untaxed profits overseas.