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
.
