In fall 2004 Congress passed the American Jobs Creation Act. Its intent was to give U.S.-based multinational corporations a onetime tax break to allow them some spending money to create American jobs.
On paper, the tax break seems reasonable. U.S.-based multinational companies must pay taxes on their earnings in the foreign countries where they have subsidiaries. Before the 2004 job-creation legislation, those earnings—called “repatriated income”—were then also subject to taxation at a rate of 35 percent when they showed up on the balance sheets at the home office—if they ever showed up. U.S. companies often simply parked profit abroad to dodge the 35 percent tax bracket back at home.
The break legislated by the act lowered the U.S. tax on multinationals’ repatriated income from 35 percent to 5.25 percent. The intent was this: The onetime lower rate would encourage them to move foreign profits to the home balance sheet. They would then earmark the resulting windfall to educate and train workers for jobs here in America.
But because of loopholes permitted by the U.S. Department of the Treasury, the companies have a great deal of leeway in how they spend those repatriated profits.
And job creation ain’t job one!
In fact, six of the 10 companies repatriating the largest sums of money are firing U.S. workers. Others are building acquisition war chests. At least one company is using the money to pay down the debt on a past acquisition—one that laid off tens of thousands.
Moreover, repatriated income is cutting into company profits. Why? Because even at 5.25 percent, a company taking a $14 billion repatriated income hit still must pay $735 million in taxes. But, who cares? The $13.4 billion revenue hit was sure worth it.
Bottom line: At a time when American businesses and American tech workers need all the help they can get to remain competitive in a global economy, corporate CEOs have once again shown their true colors. And those are all about profits at their workers’ expense.
Congress should demand that all $520 billion of the windfalls be returned to the Treasury department. Or at the very least, Congress should create a worker training program with the money that is supposed to be 100 percent dedicated to helping our workers.
If not, shame on Congress.