Earlier this month, Johnson & Johnson became one of the first major American corporations to sign on for a one-year “tax holiday” - a government-sponsored opportunity for American multinationals to bring their foreign profits back to the United States at a puny tax rate of 5.25 percent, compared with the normal corporate rate of 35 percent. Johnson & Johnson intends to repatriate $11 billion. And that is just the beginning of what is shaping up to be an unprecedented government giveaway.
The drug giant Schering-Plough has announced a coming $9.4 billion repatriation, and Eli Lilly has announced one for $8 billion. Many other cash-rich companies, especially in pharmaceuticals and technology, are expected to follow suit. Pfizer is considering whether to repatriate $29 billion in untaxed foreign profits; Hewlett-Packard has $14.5 billion eligible for repatriation; Intel has $6 billion. By the end of 2005, an estimated $100 billion to $500 billion will have found its way home. Over the long run, Congress’s Joint Committee on Taxation projects that the holiday will allow companies to avoid $3.3 billion in taxes, an estimate that many tax experts think is low.
The nation’s corporate tax rules - combined with spotty enforcement by an underfunded and outmuscled Internal Revenue Service - provide strong incentives for American companies to shift their profits from the United States to low-tax havens, such as Ireland and Luxembourg. Once there, the profits are allowed to grow untaxed by the United States until they are repatriated. That tax deferral is a hugely munificent gesture - as if the country’s biggest businesses had been granted their own special I.R.A.'s.
I’m sure this will all go to benefit minimum wage workers! Sweet!
Ok, I’m dealing with GG idiots here or something. Why should all these rich Corps get such a massive handout? Are they suffering? Will they go under if they don’t? Are you happy to fund it out of your tax dollars? Is anyone with half a fucking mind even left on this board? (Maybe they’re playing Wow?)
Companies pay 0% U.S. taxes on money that their foreign subsidiaries earn as long as that money stays foreign. The way things are structured right now that encourages those companies to keep that money foreign and invest it in more foreign operations. Letting them bring it back into the U.S. at a reasonable rate at least lets the govt have a chance to make some tax money on the deal and it provides a boost to the local economy because the tax holiday law requires that the money brought into the U.S. be invested in the U.S.
Somehow I think if I included a note with my 1040 this year explaining why I’m adjusting my rate to the exact same one the corporations are getting, I would not be getting a thank you note in return from the IRS.
MS- Not taxing income earned overseas isn’t a loophole. The IRS can’t start taxing Tim Partlett because HE DOESN’T LIVE OR WORK IN THE US.
This is actually an example of the US government being shadily greedy, since it’s costing other countries craploads of tax revenue. But figuring that out would’ve required reading the entire article, or at least past the word “puny”.
What Ben said. It’s tricky going into another country and taxing income earned in that country. It’s far from a “loophole.” The government is trying to find a way to get MORE money from companies in this case, not less.