- The Washington Times - Monday, December 5, 2011

An army of lobbyists, including former key staffers of prominent senators and members of Congress, has descended upon Washington with one goal in mind: a tax holiday for “offshore” profits of U.S. companies.

Much to the chagrin of those who prosper through the taxpayers’ largess, the arcane rules of tax laws written with the “assistance” of such lobbyists can give rise to results such as the famous “zero tax” on the $14 billion profit earned by Obama administration ally General Electric. It turns out you really do get less of what you tax. And taxing business is a Washington obsession.

It is ironic that the Beltway insiders who wrote the tax laws for the purpose of giving themselves the gift of more revenue from corporate profits awoke to find a lump of coal instead. Facing the prospect of reduced net profits, many of America’s largest businesses decided that shifting paper and “earnings” outside of the United States made better sense to their bottom-line desire to survive and thrive. So now the lobbyists and financial gurus have turned their dubious skills toward developing a “tax holiday.”

Gerrymandering the tax code has created significant incentives for American companies to earn and leave profits outside of the American economy in order to legally avoid some of the planet’s highest corporate tax rates. But it turns out the U.S. economy itself cannot thrive without that cash. So Washington insiders have decided to employ additional tax gymnastics to rectify the situation.

It is worth debating whether it is appropriate for government officials to choose winners and losers within the U.S. economy. It is worth noting that a track record of failure has accompanied such efforts. And it is worth remembering that this is not a new idea.



The last time this was tried in 2004, the numbers were a lot smaller - some 75 percent smaller, to be more precise. The Obama White House, at least for now, claims to oppose such a repatriation but may look with increasing favor upon an opportunity to increase the Dow while bringing another trillion or two into the economy during an election year. The temptation will be great.

Whether by big government advocates or Occupy Wall Street activists, businesses have been routinely demonized as “un-American,” “evil” or “unfair” in their attempts to avoid taxes. But dizzying levels of complexity have been employed to legitimately reduce or avoid exposure to U.S. corporate taxation for one reason: It is more expensive to do business in the United States than in other countries. And the international competitors to U.S. business have been taking advantage of that fact to price U.S. goods out of the market.

To grow, businesses must reduce necessary and legitimate costs to a minimum, including tax burdens. The survival of businesses equals American jobs. Consider this side note from President Obama’s Solyndra government-funded project scandal: A Chinese company unburdened by heavy taxation and regulation was able to make and sell cheaper solar panels. The U.S. company just could not compete and win, even given the infusion of hundreds of millions of dollars from the taxpayers.

The problem with a “tax holiday” to lure businesses back into the arms of the U.S. tax collectors is that it does not address the real issue: A system of aggressive taxation and regulation of American businesses as a whole is an unwise policy that rewards a few while imposing heavy tax burdens upon the many. Rather than pushing money offshore with the resultant damage to employment and capital funding, it would be better to reduce corporate tax rates across the board.

Indeed, as the record shows, the size of corporate profits maintained overseas to avoid taxation actually grew after the last tax amnesty.

We don’t so much need a Warren “Buffett rule” as President Obama suggests; we need an Jeffrey “Immelt rule,” named after GE’s tax-free CEO. The results among the major corporations would remain about the same. However, funds now expended to avoid taxation and kept overseas to the detriment of the American economy would remain within the United States from start to finish. There would be no need to go to extremes to avoid excessive taxes if rates were the same (or lower) as those overseas. GE et al. would pay the lower rate they now get overseas but save a lot of money on lobbyists and tax attorneys.

And for the rest of us, the small- to medium-sized businesses (which rely on certified public accountants and tax attorneys to determine their tax rate rather than lobbyists), the result might well be a boom in hiring, expansion and investment at home.

At this time of year, if we are to celebrate a “tax holiday,” Congress should make it a holiday for everyone. That way the salubrious results that both parties desire during an election year will benefit the nonpolitical class as well. For those desiring incentives for businesses to operate within the United States or for jobs within the U.S. economy, a “tax holiday” for all business would be the gift that keeps on giving.

Gary Dettloff is a former Internal Revenue Service attorney who helped establish the Taxpayers Advocate’s Office. Michael Hamrick is managing partner with Waterford Risk Management. Both are partners with Those Tax Guys.

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