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 user 2005-02-21 at 9:29:00 am Views: 89
  • #10414


    U.S. Companies Bring Overseas Profits

    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

    “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

    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

    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

    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

    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

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

    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