ADVERTISEMENT

ADVERTISEMENT

One-time tax break saved corporations $265 billion

New York Times News Service

More than 840 of the largest American corporations reaped a $265 billion windfall thanks to a one-time tax break aimed at bringing home profits stashed overseas, according to recent government data.

The windfall resulted from a temporary tax deduction for big corporations, which were keeping billions of dollars in profits in overseas subsidiaries and out of the hands of the IRS.

The total amount brought back to the United States was far above some estimates, according to the data, which provides new details on the tax break.

American companies can typically defer paying taxes on foreign profits as long as they keep that money outside the United States. When companies bring the money back, they usually pay the top corporate tax rate of 35 percent.

ADVERTISEMENT

The biggest and wealthiest companies in the United States have increasingly set up foreign subsidiaries and used them either as foreign operations or offshore repositories. The subsidiaries, many in offshore tax havens like the Netherlands, Ireland and the Cayman Islands, collectively held about $804 billion in foreign profits on which their American corporate parents had yet to pay any U.S. taxes, according to the IRS.

A one-time tax holiday enacted by Congress in 2004 offered companies the chance to bring that money back at a reduced tax rate of 5.25 percent.

In all, 843 corporations took advantage of the offer, according to recent IRS statistics of income data, bringing back $362 billion in foreign profits, paid to the parent corporations as dividends. Of that amount, $312 billion qualified for the tax break, giving those companies total tax deductions of $265 billion claimed from 2004 through 2006.

Supporters of the tax break say it was a success because it brought about $18 billion into Treasury coffers that otherwise would have stayed overseas.

The tax break was included in the American Jobs Creation Act of 2004, with the intention that the repatriated money would prompt investment in the U.S. economy and spur job growth. Companies had to promise to use the money to invest in their domestic operations.

But the provision had wide definitions of the term "investment" and allowed corporations to use repatriated profits to shore up their domestic finances, pay legal bills and bankroll advertising.

Critics of the legislation say there is little evidence that companies put the money into creating jobs or investing in U.S. operations and deride the tax break as corporate welfare.

What To Read Next
Fundraising is underway to move the giant ball of twine from the Highland, Wisconsin, home of creator James Frank Kotera, who died last month at age 75, 44 years after starting the big ball.