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 user 2005-02-21 at 9:37:00 am Views: 54
  • #10415

    U.S. Companies
    Bring Overseas Profits Home

    WASHINGTON-Led by drug makers,American companies have
    started announcing their plans to use a temporary tax break and shift back to
    the United States billions of dollars in profits that have been stashed abroad.

    An incentive to invest in the U.S.
    economy-that’s how lawmakers promoted the short-term relief that lets
    companies avoid as much as 85 percent of the taxes they might otherwise pay on
    earnings abroad.

    Critics say there
    is no assurance that new jobs will result.

    “There are some alleged restrictions that are easy to
    get around,” said Robert McIntyre, director of Citizens for Tax Justice.

    Johnson & Johnson, which makes a broad range of
    health care products, plans to return $11 billion to the country. Dell, the
    computer manufacturer, has $4 billion to repatriate. Kellogg, known for its
    cereal and snacks, wants to return $1 billion to domestic operations.

    The announcements stem from a law passed in October that
    allows companies, for one year, to pay a reduced 5.25 percent tax on overseas
    earnings returned to the United States.The profits otherwise face tax rates as
    high as 35 percent.

    Private estimates suggest that companies could bring
    more than $300 billion in overseas earnings back into the United States. Few
    companies have said how they will use the money once it starts to stream back
    into domestic operations.

    Allen Sinai, president and chief economist at Decision
    Economics, estimated that companies might be on track to announce a combined
    $100 billion repatriation during the first quarter of the year.

    He estimated the influx of cash could generate 400,000
    to 600,000 jobs over the next few years and boost economic growth this year.

    “We’re on the way to quite a bit of money coming back
    from overseas,” Sinai said.

    Lil Mills, a tax professor at the University of Arizona,
    said the bricks-and-mortar effect of the incentive will not be observed for some

    “Does it really create new U.S. manufacturing jobs is a
    longer term economic study,” she said.

    The majority of lawmakers believed strongly enough in
    the idea that they rejected efforts by a few colleagues to put tighter reins on
    businesses and restrict them to using the money for wages, employee pensions,
    capital improvements and research.

    Lawmakers wrote a “purposely nebulous” law that would
    give businesses lots of flexibility to invest in the U.S. economy, said Greg
    Kelly, a Washington analyst at Susquehanna Financial Group.

    No part of the law requires companies to show they have
    increased spending in the areas where they devote money brought in under the
    law. Repatriated money can displace dollars already spent on the approved uses,
    freeing up those funds for other purposes.

    “At the end of the day, what was most important for
    Congress was this money would come back domestically,” Kelly said.

    Susquehanna surveyed large companies that lobbied for
    the law. The firm estimated that as much as $320 billion, about two-thirds of
    the money qualifying for the tax break, could be returned.

    “Regarding job creation, we would argue it’s more
    important to look at the longer term effects,” Kelly said.

    The law requires that companies reinvest the money in
    their U.S. operations according to a plan approved by the company’s top
    executive and board of directors.

    The Treasury Department last month ruled that the money
    can be used to hire and train workers, make capital investments, conduct
    research and development, advertise and market products or stabilize the
    company’s finances, among other uses.

    The money cannot be used for executive compensation,
    shareholder dividends, stock buybacks, portfolio investments or tax payments.

    In the first wave of announcements, companies were
    generally guarded about their plans for the money.

    Kellogg executives told investors the law
    gives the company the flexibility to look at developing new products,
    advertising or buying other food companies. Dell indicated an interest in
    research and development, marketing or new facilities