After Congress delays vote on whether to extend Bush tax cuts, corporate foreign profits back in crosshairs.
There is a lot of talk about cyclicality these days as it relates to the economy, but it can also apply to other issues. Take corporates taxes for instance. Last year around this time the Obama Administration, while in the process of putting the kibosh on another temporary grace period for corporations to bring home cash held overseas – aka HIA 2.0, proposed tax changes aimed at ending tax deferrals for corporate offshore cash.
But fortunately corporates got a breather. The deferred-tax issue fell by the wayside (or was pushed) in the ensuing months as Obama focused on other issues like healthcare and FinReg. But it’s back again. That’s because with Congress now delaying a vote on whether to extend the Bush tax cuts – of which Obama says “yes” for middle-class taxpayers and “no” for those making over $250,000 – the administration is again turning more of its focus to the corporate deferred-tax issue; the continued claim being that corporates have been getting away with not paying enough tax on overseas profits and moving jobs overseas. A similar sentiment was behind changes to the US foreign tax credit regime, part of the latest round of legislation to extend unemployment benefits (see related).
A loss of a tax deferral on offshore income is surely a worrisome development for corporates. However, there’s a new twist to the “getting away with murder” on taxes narrative Obama is pushing: in early September, former Service Employees International Union head Andy Stern essentially came out in support of something akin to HIA 2.0. He even suggested that it could come as a prelude and not a complement to a more comprehensive reform of international tax rules, as had been proposed before. “Many argue that we need to lower rates and we need to close the loopholes,” Mr. Stern wrote in a piece for the Washington Post. “But, while we wait for this argument to conclude, workers sit home unemployed and the overseas money is not put to good use in the US economy. So, let’s revisit the idea of a one-time repatriation tax break.” Under his proposal, the government share would go toward an infrastructure bank or green energy projects bank.
The result, he predicted, “Jobs created: 8.4 million, cost: $30 billion, pay-for: one-time corporate repatriation tax break, cost to taxpayers: zero.”
This is significant in that SEIU has grown – is growing – into a superpower among unions and is now a major voice. And labor has been more of an opponent than proponent of tax holiday redux. And although Mr. Stern is no longer head of the SEIU, he is part of Obama’s National Commission on Fiscal Responsibility and Reform, which the president put together back in February of 2010. According to its web site, the NCFR is charged with “identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.”
Of course things could still fall either way on tax changes affecting offshore income. But having a recent Obama ally speak out for a repatriation tax holiday as a political counterpart to an end to deferral is welcome news.