Pfizer is one of a group of corporations that could benefit from a tax holiday. The big battle over overseas profits

Goaded by battalions of corporate lobbyists, members of Congress are working to give a select group of U.S. multinational firms like Oracle, Apple and Pfizer a lavish tax break on $1 trillion stashed offshore.

A number of trade groups and corporations that would benefit have joined in a coalition called WIN America. New lobbying disclosure reports show that the group and its member firms have spent millions of dollars, and employed dozens of lobbyists, to press for the tax break, according to an analysis by iWatch News.


The goal is to generate jobs and investment, but the offshore tax holiday was tried before, in 2004, and the lion’s share of the benefits went not to unemployed workers and their families but to corporate shareholders and executives.

Defenders of the tax holiday say bringing money back from overseas will be a net positive, adding an infusion of cash into the economy and creating opportunities for new jobs. The New America Foundation has estimated that the boost to the economy could ultimately lead to the creation of from 1.3 million to 2.5 million jobs.

But other estimates say the proposed tax holiday could end up costing the Treasury $40 billion to $80 billion over the next decade, and critics are asking why corporations and their shareholders should get a tax break on overseas profits, especially at a time of high unemployment. The high cost of the measure is one reason that its prospects for passage are mixed.

Still, 73 members of Congress, Republicans and Democrats, have signed up as co-sponsors. And cash-rich corporations are pushing hard for the tax break.

The current rules for tax repatriation, as the process is called, are a thorn for U.S. firms that make money overseas. American companies face a 35 percent corporate income tax. Money earned offshore is taxed only by the country of origin until it is “repatriated” to the U.S., at which time an additional tax is levied to make up any difference and bring the rate to 35 percent.

The 2004 holiday allowed U.S. firms to bring their offshore profits back and pay a rate of only 5.25 percent.

“I want them to pay their taxes like the rest of us,” said Sen. Carl Levin, the Democrat from Michigan whose committee compiled a report in response to the push for a new tax holiday. “The rest of us don’t get a tax holiday.”

There are 27 million businesses in America, and almost 10,000 have foreign subsidiaries and can qualify for the tax break. But only 843 of these firms took advantage of the bargain tax rates set by the 2004 law, the IRS says.

Those 843 companies brought around $362 billion home from overseas. More than half the benefits went to just 15 companies. And just five — Pfizer, Merck, Hewlett-Packard, Johnson & Johnson and IBM — retrieved $88 billion, a fourth of the funds returned.

The countries of incorporation with the largest percentage of repatriated funds under the 2004 law included the Netherlands, Switzerland, Bermuda, Ireland, Luxembourg and the Cayman Islands.

In many cases, the money was moved through shell companies, often just mailboxes, which had no employees or physical assets.

Many firms used the “repatriated” money to launch stock buyback efforts, boosting the value of their shares and — via stock awards to senior managers — increasing executive compensation, rather than investing the money in new jobs or research and development, as the bill intended.

Because of the law’s lax safeguards, firms that took advantage of the tax break in 2004 “did not … significantly increase employment or research and development,” Dhammika Dharmapala, an expert on tax policy, and one of the authors of a National Bureau of Economic Research study of the 2004 holiday, told iWatch News.

The language of the law expressly forbade companies from using repatriated funds for stock buybacks or executive compensation. But that did not prevent companies from doing so — the research bureau calculated that from 60 percent to 92 percent of the money repatriated was paid out to shareholders.

Drug giant Pfizer, which repatriated the single largest chunk of cash — $37 billion — announced that it was laying off thousands of employees in 2005. Yet from 2004 through 2006, according to the Senate inquiry, Pfizer repurchased more than $17 billion of its stock and awarded its five most highly compensated executives with shares worth $30 million.

“If you’re looking for straight-up, direct job creation, the evidence isn’t there,” says Michael Mundaca, until this spring assistant secretary of the Treasury for tax policy in the Obama administration.

The financial return for lobbying in the 2004 debate is indicative of why firms have once more embraced the goal. According to one University of Kansas study, companies reaped $220 in tax benefits for every $1 spent on lobbying — a 22,000 percent return.

WIN spent the first nine months of this year actively lobbying for a repatriation bill in Congress. It spent $380,000 to target lawmakers with a total of eight lobbyists, including a former congressman and several former congressional staffers with ties to co-sponsors of the bill.

• Jim McCrery, a former congressman who represented Louisiana’s 4th District until 2009.

• Drew Goesl, who served as chief of staff for Rep. Mike Ross and communications director for Sen. Blanche Lincoln, both Arkansas Democrats; Ross is a co-sponsor of the House bill.

• Tucker Shumack, a former legislative assistant for Sen. Johnny Isakson (R-Ga.), a co-sponsor of the Senate bill.

• Dena Battle, a former legislative director for Rep. Dave Camp (R-Mich.), who as chairman of the House Ways and Means Committee has sway over U.S. tax policy.

• Jeff Forbes, a former staff director on the Senate Finance Committee.

• Libby Greer, a former chief of staff for former Rep. Allen Boyd (D-Fla.).

All told, 58 organizations and companies listed “repatriation” on their disclosure forms as an issue on which they were lobbying through the first nine months of 2011. While these companies spent at least $71.2 million on lobbying during this period, because of the way lobbying is disclosed, it is impossible to tell exactly how much was spent on what issue.

WIN-affiliated companies such as Pfizer ($7,340,000 overall), Qualcomm ($3,880,000 overall), Microsoft ($3,592,000 overall), Apple ($1,350,000 overall) and Oracle ($1,150,000 overall), among others, spent at least some money to lobby on the issue.

The 2004 tax break was advertised and sold as a one-time deal, but the affected firms correctly perceived that after a few years had passed they could demand another round of relief, and they have stockpiled hundreds of billions of dollars overseas in anticipation of the next holiday.

Mundaca sees serious dangers in having the repatriation holiday. “I think a holiday every few years is unsustainable,” he told iWatch News. “You can’t have an important part of your tax system subject to the whims of the legislative process.”

There are now several tax holiday proposals, embraced by both Democrats and Republicans. The Foreign Earnings Reinvestment Act, for example, is sponsored by Democratic Sen. Kay Hagan of North Carolina and Republican Sen. John McCain of Arizona. It would reduce the tax on repatriated earnings to 5.25 or 8.75 percent, depending on the size of a firm’s payroll.

Under the Hagan-McCain bill, firms that add workers would be rewarded and those that exploit the holiday and then lay off workers would be penalized — a new wrinkle designed to meet the criticism that several big firms which took advantage of the 2004 holiday proceeded to cut, rather than expand, their workforce.

The tax break proposals are predominantly sponsored by Republicans, but three Democrats in the Senate and 10 in the House have signed on as co-sponsors of the two main bills. Among the Democrats who supporting the bill are representatives from districts with high-tech and software industries. Reps. Zoe Lofgren and Anna Eshoo, whose districts encompass California’s Silicon Valley, and California Sen. Barbara Boxer, for example, support the bill.

John Aloysius Farrell and Aaron Mehta are reporters for iWatch News, the website of the Center for Public Integrity, which is the oldest and largest nonprofit journalism organization in the country.