As Tax Repatriation Gains Steam, Important Questions Need Answering

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On June 15, 2011, think tank Third Way held the event “The Next Stimulus? Bringing Corporate Tax Dollars Home to Work in America” supporting a tax repatriation holiday. When the panel was opened up for questions, they faced tough questioning from critics of the repatriation holiday, not all of which they could answer adequately.

Listen to an excerpt of the questions and answers here:

Questioning on Repatriation Holiday by taxjustice

Question 1: Steve Wamhoff, Legislator Director, Citizens for Tax Justice (0:00)
I just want to clarify your views on some of the other research that has been done. I think what your saying is that the bipartisan Congressional Research Service was wrong in issuing it’s study that said the last time this was tried it did not create jobs. And that the non-partisan Joint Committee on Taxation was wrong recently when it put out it’s analysis saying that if we repeat this repatriation holiday it will cost $79 billion over 10 years partially because some of those profits would’ve been brought back anyway, partially because ultimately corporation will shift even more profits offshore. Meaning even if your only goal is to get more of these profits to the US, even in that limited goal you fail on that. So do I understand you correctly that you think that the Congressional Research Service and the non-partisan Joint Committee on Taxation are incorrect and that Congress should ignore these analyses?

For the Congressional Research Service Analysis click here.

For the Joint Committee on Taxation Analysis click here.

Question 2: Richard Phillips, Research Analyst, Institute on Taxation and Economic Policy (3:40)
I’d like to ask a question based on this point we’re just talking about. Wouldn’t a better alternative to a tax repatriation holiday be to end deferral of offshore profits and go to a system where all companies have to pay taxes on offshore profits?

For more information on moving to a full worldwide system and ending deferral check out Citizens for Tax Justice’s report here.

Question 3: Nicole Tichon, Executive Director, Tax Justice Network USA (6:22)
I think Mr. Rogers you said that we didn’t have as much offshore [then] as we do today in your comments. Doesn’t that speak to the issue that this actually incentivizes companies to keep their money offshore if they think they can just have a holiday every 5 or 6 years?

For more information on Tax Justice Network USA’s take on the repatriation holiday see their op-ed in the Huffington Post.

Question 4: Scott Klinger, Tax Policy Director, Business for Shared Prosperity (9:56)
I think one of you noted that some companies are devoting a lot of effort to accounting way of moving profits offshore, through things like regressive transfer pricing. Some of our small business members think that that’s a pretty big loophole that needs closing that’s caused this swelling of offshore assets. Would you be in favor of looking at closing some of the tax haven loopholes and tightening transfer pricing restrictions as part of this repatriation bill?

For more information on Business for Shared Prosperity’s take on the repatriation holiday see their website.

Advice for North Carolina on Gas Tax Policy: Don’t Be Like Pennsylvania

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Expert to North Carolina: Don’t Cap the Gas Tax

Statement from the Institute on Taxation and Economic Policy (ITEP)

June 23, 2011

Washington, DC – With the state’s gas tax pegged to the price of gasoline, North Carolina is scheduled to raise its gas tax rate on July 1. This increase was entirely predictable, but is understandably controversial. Unfortunately, the debate surrounding what to do in the wake of this increase has been far too narrow, focusing on just two options: capping the maximum tax rate, or doing nothing at all.

Carl Davis, Senior Analyst at the Institute on Taxation and Economic Policy (ITEP) and author of a major 50-state gas tax report due out late this summer, issued the following statement in response to the controversy:

“North Carolina’s gas tax is clearly in need of reform, but a simple gas tax cap is a blunt instrument that can do more harm than good. The neighboring states of Kentucky and West Virginia have gas taxes similar to North Carolina’s, and both have wisely chosen to address the problem of price-related volatility by limiting changes in their tax rates to no more than 10%. They don’t cap the tax, but they do cap the volatility.

“A cap on the variable portion of North Carolina’s gas tax, similar to the type used in Kentucky and West Virginia, would have resulted in the state’s gas tax rate rising just 1.5 cents this July 1, rather than the full 2.5 cents currently scheduled to occur. A cap above or below 10% could have resulted in a slightly larger, or smaller, increase.

“A limit of this type would produce a more stable and predictable gas tax, and one that results in fewer surprises for taxpayers, transportation officials, and state lawmakers.

“Such a limit would also allow the state’s gas tax to retain its character as a tax on the actual price of gas, while smoothing some of the jarring ups and downs seen in recent years. Gas tax caps, by contrast, run the risk of transforming North Carolina’s extremely sensible price-based tax into a stagnant, flat levy that can never keep up with the state’s transportation needs. In Pennsylvania, for example, a gas tax cap has left state’s tax rate unchanged since 2006, resulting in flatlining revenues while transportation funding needs continue to climb. Pennsylvania is the poster child for bad gas tax policy.

“The problem facing North Carolina lawmakers is not new, and not unique to North Carolina. The Tar Heel State’s neighbors to the north have already dealt with this issue, and North Carolina should learn from their experiences by implementing a similar reform.”


Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP’s mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy. ITEP’s full body of research is available at


Chuck Schumer’s Amazing Double-Somersault on the Repatriation Holiday

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Senator Schumer Supported, then Opposed, and Now Supports, Amnesty for Corporate Tax Dodgers

In 2004, Senator Charles (Chuck) Schumer of New York voted in favor of the so-called American Jobs Creation Act, a bill full of so many tax breaks for special interests that one observer called it a “bacchanalia of Caligulan proportions.” The bill, which many Democrats and Republicans supported, prompted one business lobbyist to confess to a reporter that the policy process had “risen to a new level of sleaze.” One of the most outrageous breaks in the bill was an amnesty for corporate tax dodgers, a measure called a “repatriation holiday” by its supporters.

A second “repatriation holiday” was proposed as “economic stimulus” in 2009, but Senator Schumer, like most Senators, voted against it because of data summarized by the Congressional Research Service showing that the 2004 measure did not create jobs. In fact, the research showed that the benefits went to enrich shareholders rather than to job creation.

Now Senator Schumer has switched positions again and is supporting a second repatriation holiday.

How the Repatriation Holiday Would Help Corporations

In theory, U.S. corporations pay U.S. income taxes on their profits no matter where they are generated. But they are allowed to “defer” (not pay) U.S. taxes on their offshore profits until they bring those profits back to the U.S. (until they “repatriate” the profits), which may never happen. (A separate provision ensures that these profits are not double-taxed if taxes are paid to the foreign government.)

A tax holiday for repatriated profits would allow them to bring these profits to the U.S. and pay no taxes, or pay a very low rate. (The 2004 measure taxed offshore profits repatriated during the holiday at a nominal rate of just 5.25 percent instead of the normal 35 percent corporate income tax rate.)

Another Repatriation Holiday Will Cost the U.S. $79 Billion in Tax Revenue

According to the non-partisan Joint Committee on Taxation, a repeat of the 2004 repatriation holiday would raise some revenue during the first few years, but then reduce revenue by a larger amount over the rest of the decade, resulting in a net loss of about $79 billion over ten years.

The analysis also shows that a repatriation holiday that is slightly less generous to corporations (one taxing repatriated offshore profits at 10.5 percent) would cost about $42 billion over ten years. 

Another Repatriation Holiday Will Cost the U.S. Jobs

One factor causing the $79 billion revenue loss is the way U.S. corporations will respond when Congress shows itself willing to enact a repatriation holiday more than once. Corporations will likely shift even more profits offshore in the long-run, because corporate leaders will think they can simply wait for Congress to enact the next repatriation holiday allowing them to bring those profits back to the U.S. tax-free or almost tax-free. This means more investment will be made overseas rather than here in the U.S.

Incredibly, the coalition of companies promoting the holiday argue that it will create jobs, even though the non-partisan Congressional Research Service found that the 2004 measure failed to create jobs and that the benefits went instead to corporate shareholders.

The Repatriation Holiday Is an Amnesty for Corporate Tax Dodgers

Corporations would not just shift real investments (real operations and jobs) overseas. They would also respond by increasing the amount of profits they shift to offshore tax havens through sham transactions that exist only on paper. In fact, the proposal would give the greatest benefits to the worst corporate actors, those who shift profits offshore to avoid U.S. taxes.

A U.S. company that is doing real business in another country typically will reinvest those offshore profits in factories, oil wells or other assets, making it difficult to bring those profits back to the U.S. But a company that is engaging in profit-shifting (disguising U.S. profits as “foreign” profits through transactions that exist only on paper) has likely merely shifted profits to a tax haven subsidiary that consists of little more than a post office box. It’s much easier to repatriate these offshore profits than the offshore profits from real business activities. 

Also, a U.S. corporation that is doing business in a typical foreign country is already paying some tax to the foreign government, which means they can already repatriate those profits to the U.S. without paying the full 35 percent U.S. corporate income tax rate. But a U.S. corporation that has shifted its profits to a tax haven is typically paying no taxes to the tax haven government, which means they would pay the full 35 percent U.S. rate if they repatriated those profits under current law. U.S. corporations shifting their profits to tax havens therefore stand to gain the most from a repatriation holiday.

Corporate Leaders Are Divided on the Repatriation Holiday

Some corporate leaders have banded together in an extremely well-funded campaign to promote a second repatriation holiday. But other corporate leaders have decided to lobby instead for an even bigger tax giveaway. A repatriation holiday is essentially a temporary tax exemption for corporations’ offshore profits. Some corporate leaders think they can obtain a permanent tax exemption for offshore profits — a territorial tax system, in other words — and they think that enactment of a repatriation holiday would distract from that goal.

The Republican chairman of the House Ways and Means Committee, Dave Camp, agrees with the corporate leaders who prefer a territorial system (the bigger tax giveaway) to a repatriation holiday. But he has not ruled anything out.

Photo via Pro Publica Creative Commons Attribution License 2.0

Most Extreme Balanced-Budget Amendment Ever Moves Forward in the House

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Last Wednesday, the House Judiciary Committee approved H.J.Res 1, the newest incarnation of the potentially disastrous balanced-budget amendment. As passed out of committee, the balanced-budget amendment is more extreme than versions proposed in the past, as it would not only require that government outlays equal receipts, but would also limit spending to about 16.7 percent of gross domestic product and require a 2/3’s majority for any increase in revenue.

In its comprehensive rebuke of the balanced-budget amendment, the Center on Budget and Priorities (CBPP) explains that the amendment has potential for “serious economic harm,” as it would force cuts in automatic stabilizers like unemployment insurance during recessions when they are needed most. It’s precisely for this reason that more than 1,000 economists, including 11 Nobel laureates, signed a statement in 1997 opposing the balanced-budget amendment that Congress nearly approved that year.

The spending cap would require catastrophic cuts to government services even when the country is economically prosperous. The amendment would cut spending to 18 percent of the previous year’s GDP, which is typically about 16.7 percent of the current year’s GDP.

As CBPP explains, the required cuts would go well beyond those in Rep. Paul Ryan’s plan and be more on the scale of the much more extreme Republican Study Committee’s plan, which includes cutting in half the Medicaid, Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), and Supplemental Security Income programs, just to name a few, on top of dramatic cuts to Medicare and Social Security.

Fortunately, passage of the amendment is no easy task. It requires a 2/3’s majority of both chambers of Congress and ratification by 3/4’s of the states. A test vote in the Senate on a resolution expressing support of a balanced-budget amendment in March garnered only 58 of the 67 votes required, showing that proponents of the amendment may have an uphill fight. On the other hand, the 1997 amendment came within one vote of approval in the Senate.

Radical anti-tax and Tea Party groups believe they can change this equation by pushing the amendment as part of their new “Cut, Cap, Balance” plan, which calls on lawmakers to require the passage of the amendment as a condition for increasing the debt ceiling. In fact, conservative groups are pushing Congressional Republican’s to hold off having a vote on the amendment, knowing that the threat of the debt ceiling vote is their best opportunity to pass it.

Lawmakers need to stand up to these groups who are attempting to hold our economy hostage (by not raising the debt ceiling) in order to pass a radical budget amendment as a Trojan Horse for draconian service cuts.

Former Republican Senator Judd Gregg recently commented, “Lord save us from the well intentioned and those who are trying to score political points or raise money” by pursing this form of “conservative misdirection.”

Grover Norquist Maneuvers Frantically to Avoid a Tiny Deviation from Anti-Tax Ideology

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The U.S. Senate voted last Thursday to repeal a tax break for the ethanol industry that cost $5.4 billion last year. Some observers interpret the vote as an indication that the grip of anti-tax ideologue Grover Norquist over Congress is loosening. However, Republican and Democratic lawmakers who have slavishly signed and followed Norquist’s so-called “Taxpayer Protection Pledge” will have to do far more to prove they can address our revenue shortfall in a serious and honest way.

The vote brought to a climax the months of sparring between Norquist and Senator Tom Coburn of Oklahoma over the idea of repealing tax expenditures as part of a compromise to reduce the deficit. 

Norquist’s Americans for Tax Reform (ATR) stated that even though it opposes ethanol subsidies, any repeal of the tax subsidy that was not offset with tax cuts represented a “a corporate income tax increase and therefore a pledge violation.”

The pledge in question is, or course, ATR’s so-called “Taxpayer Protection Pledge” which most Republicans and some Democrats in Congress have signed, swearing to forgo any tax increase until the end of time.

Once it was clear he was going to lose the vote on the subsidies (with 34 Republicans voting for the measure), Norquist tried to save face by claiming that a vote for repeal was not a pledge violation as long as it was coupled with a vote for South Carolina Senator Jim Demint’s amendment, which would eliminate the estate tax along with ethanol subsidies. This amendment, however, never even came up for a vote, forcing Norquist to shift again, saying that the defeat of the larger bill on which the ethanol language was attached means the pledge has not been violated.

South Dakota Senator John Thune of South Dakota, certainly no progressive on tax issues, described Norquist’s maneuvers as “a tremendous amount of gymnastics.”

One GOP aide opined in an interview with the National Review that 34 Republicans voted to tell Norquist to “take a hike” and “rejected his narrow and ridiculous interpretation of what the pledge means.”

But before anyone starts patting the pledge-signers on the back for being responsible, it’s worth remembering that an awful lot of them would have voted for the repeal of the estate tax, if that came up for a vote. The Tax Policy Center has projected that the estate tax will raise $487 billion over the coming decade, far more than was saved by repealing the tax subsidy for ethanol.

Of course no one can be blamed for being hopeful that lawmakers will realize that cutting government spending should include cutting government spending that is done through the tax code. Such a shift is long overdue. Tax expenditures have ballooned to over a trillion dollars annually and are not given the scrutiny that Congress applies to direct spending.

The vote may only be a fleeting setback for Norquist. As Washington Post commentator Ezra Klein notes, the fact that raising ANY revenue from repealing even the most egregious and minor tax breaks is considered a major concession shows just how influential Norquist and his anti-tax extremism have become. 

Photo via Gage Skidmore Creative Commons Attribution License 2.0

What Is Congressman Jared Polis Thinking?

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The latest idea from Congressman Jared Polis (D-CO) is to protect the ability of tax professionals who have thought up creative tax avoidance schemes to get as much profit from these schemes as they possibly can.

Rep. Polis first made a name for himself in the tax world during the health care reform debate, when he drafted and circulated a letter that was signed by several freshmen House Democrats who opposed the surcharge that the Democratic caucus was considering to help finance health care reform.

Recently, Polis joined a group of five lawmakers in cosponsoring an amnesty for corporate tax dodgers, which he and other proponents call a “repatriation holiday.”

Now Rep. Polis is going to bat for lawyers and accountants who want to patent the creative tax avoidance schemes they have dreamed up. Tax strategy patents have to be one of the worst ideas of the last couple of decades. These patents allow tax professionals to obtain a patent on a particular tax planning strategy and charge royalties to taxpayers to allow them to use it.

The Senate has passed a major patent bill (H.R. 1249, the America Invest Act) that includes a provision banning the issuance of patents for tax strategies. Colorado representative Jared Polis has offered an amendment changing the effective date of the ban to allow patents to be issued in cases where the applications have already been filed. About 160 tax strategy patent applications are pending. A spokesman for the congressman said that it was a matter of protecting applicants that had already revealed their strategies.

No one should be able to have a monopoly over part of the tax code and taxpayers shouldn’t have to pay royalties or defend themselves against lawsuits for legally using the tax laws. None of these types of patents should ever have been issued and there’s no good reason to allow the patent office to issue any more.

Photo via Studio08Denver Creative Commons Attribution License 2.0

Tar Heel State Could Become Tax Free Haven for Multistate Corporations

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If a multistate corporation doing business in North Carolina shows signs of shifting income around to avoid paying state taxes, the state’s Department of Revenue has authority to require additional information to be sure the company’s not simply offshoring its profits. But that may be about to change.

In the last hours of North Carolina’s legislative session this year, the House and Senate passed a two-pronged bill that will legally allow multistate corporations doing business in North Carolina to avoid paying corporate income taxes rightfully owed to the state.

First, the bill limits the Department of Revenue’s power to demand companies “combined reporting,”  i.e., fully disclose income for all of a company’s subsidiaries, regardless of their location.

Under the new law, the Secretary of Revenue could only force a combined report if transactions between subsidiaries have no “reasonable business purposes” other than reducing the corporation’s tax liability. As the NC Budget and Tax Center noted, “corporate accountants could easily restructure tax shelters and give them the appearance of “business purposes,” even if the primary purpose was to, in fact, reduce corporate taxes.”

Second, the bill reopens the egregious “royalties and trademark loophole” closed by legislators ten years ago.  Multistate corporations operating in North Carolina with headquarters out of state will now be allowed to charge their North Carolina entities for the right to use the corporations’ trademarks.  There is no limit to the ‘charge’ for this privilege and as such, it can (and will) be used to offset profits made in North Carolina for any given tax year resulting in zero state tax liability. 

Speaking out against the amendment, House member Jennifer Weiss said, “We are telling multistate corporations, ‘Come on over, rip us off, we won’t charge you any taxes, but we’re going to tax the little guy…Go ahead, cheat us, it’s legal.”

House Majority Leader Paul Stam argued that affording corporations the confidence that they can, in fact, avoid taxes if they move to the state was “extremely important to the economy of North Carolina.”  He added that “of all the bills we’ve had this session, this is the jobs bill.”

The bill now awaits the signature of Governor Bev Perdue.

Earlier last week, the Republican led legislature overrode the governor’s veto of the damaging state budget they crafted.  News of this last minute move to support corporate interests over the public interest is even more disturbing in light of the fact the state already has a budget in place that severely underfunds all levels of education, eliminates thousands of state workers  and limits access to health care.

Photo via  Jimmy Wayne Creative Commons Attribution License 2.0

Maine’s New Budget Gives to the Rich and Takes from the Poor, Literally

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Maine Governor Paul LePage signed a $6.1 billion two-yearbudget into law this week. The budget includes reductions to the state’s personal income and estate taxes in addition to other tax changes that will cost the state $153 million in FY12-13 and $400 million in FY14-15. 

The new tax changes are both expensive (and force spending cuts elsewhere) and incredibly unfair. A reduction in the top income tax rate and increase in the state estate tax exemption primarily benefit the state’s wealthiest residents.  According to an Institute on Taxation and Economic Policy analysis conducted for the Maine Center for Economic Policy (MECEP), more than half of the benefits of the new personal income tax reductions will go to the wealthiest 20 percent of Maine taxpayers. 

Not only do the richest Mainers benefit most from this budget, 75,000 low, moderate and middle income families are likely see their taxes increase by as much as $400 annually because of cuts to the state’s property tax circuit breaker program that protects homeowners from paying too large a portion of their family income in local property taxes. (See our fact sheet on circuit breakers.) Whatever modest tax reductions these moderate and low income filers get from the new personal income tax cuts will be offset by the increase they’ll face in property taxes.

The major tax changes enacted in Maine this session are:

  • A reduction of the top marginal personal income tax rate from 8.5 to 7.95 percent;
  • A restructuring of the personal income tax rates, collapsing from four to three brackets replacing current rates with  0, 6.5, and 7.95 percent;
  • Increasing the standard deduction and personal exemption to the federal amounts;
  • Eliminating the state’s alternative minimum tax, which is designed to ensure that upper-income taxpayers pay at least some income tax;
  • Raising the estate tax exemption threshold from $1 million to $2 million;
  • Limiting the value of the property tax circuit breaker to 80 percent of the total benefit;
  • Eliminating the annual indexing of the state’s motor fuels tax to inflation, a move that would make the gas tax less sustainable over time.

Photo via  Jimmy Wayne Creative Commons Attribution License 2.0

DC Council Passes Budget with Progressive Tax Increases

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The DC City Council passed a budget last week that DC Council Chairman at Job with Just Eventincludes a variety of smart tax policy changes.  Among them are a reform designed to limit tax avoidance by multi-state corporations, and a provision curtailing some of the generous tax breaks enjoyed by the city’s wealthiest residents.

One of the more notable tax changes contained in the Council’s budget is a provision implementing the “combined reporting”  of income by corporations with income from more than one state.  This reform will greatly reduce the ability of corporations to shelter their DC profits from tax by shifting them, on paper, to low- or no-tax states.  Corporations paying little or no DC taxes will also be subject to a slightly higher corporate minimum tax under the Council’s plan. 

Unfortunately, the Council also decided to return some of the revenue generated by these changes to multi-state corporations in the form of a new deduction, scheduled to take effect in five years (outside the city’s four year budget window).

Another positive provision in the budget limits the value of itemized deductions for taxpayers earning over $200,000 per year.  This limitation closely resembles a recommendation The Institute on Taxation and Economic Policy made in a pair of recent reports.

Under the Council’s budget, DC’s income tax code will also be amended to eliminate the deduction for income earned on out-of-state bonds.  No state offers such an exemption today, and the DC Fiscal Policy Institute has pointed out  that the impact of this change will be generally progressive, since most out-of-state bonds are held by individuals with over $100,000 in annual income.

Finally, the DC budget also contains a number of less progressive revenue measures to help the city weather the lingering economic downturn.  Among those changes are the permanent extension of a recent 0.25 percentage point sales tax increase, and an increase in the parking garage tax.

DC’s budget awaits the signature of Mayor Gray.  Once signed by the Mayor, the budget can only be prevented from becoming law if the U.S. House, the U.S. Senate and President Obama all three agree to block it within 30 days.

Photo via Allison_DC Creative Commons Attribution License 2.0

Rhode Island Sunset Law Would Shore Up Tax Reform

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Last year, Rhode Island’s lawmakers very wisely chose to close a large number of loopholes in the state’s Swiss cheese tax code.  Now Ocean State lawmakers have an opportunity to shore up that newly reformed code against the inevitable flood of special interest tax breaks that’s sure to come.

Read the article.