Many major U.S. corporations that run operations overseas have a lot of their profits and funds in overseas accounts to avoid being taxed. The federal law requires any repatriation of such funds from subsidiary operations to be taxed at 35%. This heavy taxation has forced many to keep their funds outside the United States. However, these companies are always seeking to influence the lawmakers to make temporary adjustments to this rule to allow them to repatriate funds at lower taxation rates. One of such successful attempts was in 2004, when a temporary law was passed to allow U.S. multinationals to repatriate their funds at a reduced rate. When this temporary law was introduced, the corporations that took advantage of the tax holiday repatriated about $315 billion back into the U.S. Many of these major corporations took advantage of the tax window to bring home lots of profits they had made from their international business over the past years. Several other attempts have been made to have a similar break but to no avail. There are various reasons that both support or oppose such a move to have a lowered tax rate for repatriated cash.
Argument for the Reduced Taxes
Most of these corporations are major and very profitable. These include some of the Fortune 500 companies and these companies have a lot of political influence over lawmakers. Most of the politicians get huge sums of money for their campaign from some of these companies. Therefore, the decision to lower the tax may have a political angle.
Argument Against the Reduced Taxes
On the other hand, the statistics from the previous 2004 temporary reduction of taxes did not yield what the supporters had promised. Those who championed the move to reduce taxes argued that reducing taxes would increase local investments and also increase the job opportunities in the United States. However, after this reduction on taxes on repatriated profits, many of the companies that brought in their cash in fact retrenched their staff workforce and therefore, the move did not translate into more jobs as promised. This may easily work against those who are supporting a reduction of taxes for the foreign incomes.
Another issue that may work against the reduction of the taxes is the current political climate. There is a major drive especially by the Obama government to have many of the tax holidays targeting the rich reduced as part of the reduction of the government deficit. It may therefore be hard to sell such a bill in Congress.