U.S.-based multinational corporations that stand to benefit from a system that gives preferential treatment to foreign income have spent more than $82 million on lobbying in Washington since the beginning of the year.
The Republican tax bill passed this week would allow companies doing business overseas to engage in a “territorial” system of international taxation. The U.S. currently operates a “worldwide” system of taxation, in which corporations pay a top tax rate of 35% on income earned abroad or domestically. Even so, American companies have an average effective tax rate of 27.1 percent after deductions. The U.S. allows companies to defer taxes on foreign earnings until they are “repatriated” or brought back to the states. A territorial system would only subject U.S. companies to tax in the countries where the profit is earned and will allow companies that previously deferred taxes to repatriate those earnings at greatly reduced rates - 15.5 percent for cash and 8 percent for other assets.
Changing to a territorial tax system would benefit U.S. corporations in business overseas while costing the U.S. government $205 billion over the next decade. According to a March report from the nonprofit Institute on Taxation and Economic Policy, the 20 U.S. companies that enjoyed the biggest increases in offshore income from 2015 to 2016 increased their foreign profits by $145 billion. They have a combined total of $1.2 trillion in unrepatriated income that has not yet been subject to U.S. taxes.
The multinationals have long lobbied for a territorial system and a break from repatriation taxes. As overall earnings held overseas have increased dramatically, the 20 corporations poised to benefit from a tax holiday have lobbied on international tax issues. Together, they have spent $950 million to influence the federal government since 2008.
The three U.S. multinationals that increased offshore profits by the greatest margin in 2016 are Apple, Intel, and Microsoft. The three companies have benefitted from an increasing market for their products in Europe and Asia.
Apple had $230 billion in unrepatriated income in 2016 and spent $4.7 million on lobbying. This year, Apple has already spent $5.5 million, including lobbying on the GOP tax plan. According to an analysis by the Institute on Taxation and Economic Policy, Apple could save nearly $45 billion under the new tax plan.
Intel has lobbied on international tax issues each quarter this year, pending a total of $2.8 million. Intel has been lobbying about “repatriation of offshore profits and overall tax simplification and reform” since early 2015. Intel has $46.4 billion in offshore income that would be taxed at a lower rate under the repatriation holiday.
This year, Microsoft has spent $6.3 million to influence the federal government, including lobbying both Congress and Vice President Mike Pence’s office in favor of a territorial tax system. Microsoft has $124 billion held offshore and also lobbied for a territorial tax system in 2013. ITEP estimates Microsoft could save over $25 billion because of the Republican tax bill.
The House Committee on Ways and Means claims the policy “makes it easier for American businesses to bring home foreign earnings to invest in growing jobs and paychecks in our local communities.” Corporations must have a domestic reinvestment plan approved before they qualify for the deduction. Although the tax bill doesn’t allow the repatriated earnings to be spent on executive compensation or stock repurchase programs, it also doesn’t require corporations to spend the money on American job creation or higher worker wages. U.S. multinationals and their shareholders will benefit from the provisions, but nothing guarantees the average American worker will see increased work opportunities or wages.
The last time Congress implemented a repatriation holiday was in 2004 with the American Jobs Creation Act, when it slashed the repatriation tax to 5.25 percent. The measure had the same restrictions to qualify for the deduction as the new tax plan. According to a report by the Congressional Research Service, companies primarily used the money “for cash-flow purposes and little evidence exists that new investment was spurred.” The holiday didn’t increase domestic investment or employment, the CRS said.
Tax breaks for foreign income also directly contradict Donald Trump’s stated platform for American companies. On Dec. 4, 2016, Trump tweeted, “any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. ......without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies”. Trump ran widely on a platform to bring back manufacturing jobs, but the new tax bill rewards companies that have avoided U.S. taxes on previously earned foreign profits.
MapLight analysis of federal lobbying disclosure filings from the Clerk of the U.S. House of Representatives as retrieved on December 12, 2017, for the top 20 U.S. corporations ranked by increase in unrepatriated income according to a report by the Institute on Taxation and Economic Policy. Lobbying totals represent money paid by an organization to each lobbying firm for services on all issues, not just international tax reform. Organizations report total lobbying expenses as a lump sum, which includes both in-house lobbying expenses and amounts paid to (and reported by) lobbying firms that they hire.