Tax Breaks Face Criticisms in the US

October 12, 2011 International Tax CooperationTaxation in USA

Tax Breaks in the USAAs the USA looks for means to raise tax revenues, new research indicates that profit repatriation tax breaks are a poor solution which could do more harm than good for the economy.

According to a new report released on October 10th by the Subcommittee on Investigations of the US Senate, profit repatriation tax breaks do not benefit the national economy, and will not raise tax revenues or employment levels.

The report examined 20 large US registered companies that utilized the US government’s tax repatriation holiday program in 2004. Within three years of participating in the program, the companies had reduced their workforce by a total of 20,931 employees, and slowed down their spending on research and development projects. The tax holiday resulted in a cumulative tax revenue loss of USD 3.3 billion for the national budget.

The 2004 repatriation holiday program granted US registered companies the opportunity to bring back their overseas profits to the US, and face a reduced tax rate of 5 percent, compared to the normal rate of 35 percent. The program specified that the funds arising from the reduced tax liability should be earmarked for hiring new employees and conducting development activities, and not for executive compensation or stock buy backs.

Commenting on the results of the report the Chairman of the Subcommittee Senator Carl Levin said that there is no evidence that the 2004 repatriation holiday raised employment levels, but there is strong evidence to suggest that it was followed by an increase in executive salaries. The release of the new report comes only days after Senator John McCain and Senator Kay Hagan introduced a new bill to offer US companies reduced tax rates when repatriating their overseas profits.

Photo by tenaciousme

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