Repatriation Tax Bill Holds Promise, but Faces Uphill Battle

A bipartisan bill is on its way to the U.S. Senate that hopes to coax large corporations like Apple to bring money they're holding off shore into the country. The bill will give companies a substantial tax break—6.5 percent instead of 35 percent—for repatriating their money, although there are some strings attached which may make it a hard sell to law makers and corporations alike.

Senate bill aims to get Apple, other companies to bring money into the USSenate bill aims to get Apple, other companies to bring money into the US

The bill is cosponsored by Barbara Boxer (D-CA) and Rand Paul (R-KY) and proposes to use the tax funds it generates to extend the U.S. Highway Trust Fund. Titled Invest in Transportation Act of 2015, the two are promoting the bill as a way to bring about US$2 trillion in foreign earnings into the country, boost economic growth, and create new jobs.

Boosting the economy, making new jobs, and keeping the Highway Trust Fund solvent all sound great, but the strings that come attached with the bill may make it less appealing to companies with substantial off shore bankrolls. Senator Boxer said in a statement,

The measure would ensure that a portion of the repatriated funds will be used for increased hiring, wages and pensions; research and development, environmental improvements; public-private partnerships; capital improvements; and acquisitions. Under the bill, no funds could be spent on increases in executive compensation, or on increases in shareholder dividends or stock buybacks for three years after the program ends. Also, any company that inverts within 10 years of participating in this program would have to repay the tax incentive with interest.

The restrictions are aimed at preventing companies from repeating what they did during the last tax amnesty period where the money brought back into the country went to executive bonuses and shareholder dividends. Companies could get creative and shift their R&D budgets to bonuses and dividends, then use their repatriated funds to replace the transfered funds.

If it's cheaper, however, to borrow money instead of bring it into the country, just as Apple has done to pay shareholder dividends, there isn't much incentive on the part of big companies to participate. In Apple's case, it has been able to get bank loans with interest rates around 1 percent for its shareholder dividend payouts. which is still substantially lower than the 6.5 percent tax rate the bill would offer.

Assuming big companies don't see the lower tax rate as a big enough incentive to bring money earned in other countries to the states, that poses a double problem for the government. First, the cost of managing the repatriation tax process could end up costing the government more money than it makes, and there won't me new money flowing into the nearly insolvent Highway Trust Fund.

Senators Boxer and Paul have a lot of work ahead if they plan on getting their bill through Congress in its current form. Assuming it isn't killed in the Senate, what's likely is that restrictions on how companies spend their freshly repatriated money will get cut to make the bill more appealing to law makers and big corporations.

It's no secret the government would love to get its hands on the tax dollars locked away in off shore corporate funds. The Invest in Transportation Act of 2015 aims to do just that, but unless that comes with the support of Congress, it'll be little more than a hollow promise.

[Some image elements courtesy Shutterstock]