*NEWS*U.S. CO’S:OVERSEAS PROFITS HOME

[Anonymous]

 

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 time.

“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

[Author]

February 21, 2005 at 9:29 AM