California’s Republican Senate nominee, former Hewlett-Packard CEO Carly Fiorina, has been promoting herself as the candidate most likely to boost job creation, particularly in California where unemployment is currently at 12.4 percent. “We have two and half million people out of work here in California, many hundreds of thousands for more than six months and many hundreds of thousands more have quit looking for work altogether. The facts are, we’re destroying jobs in this state through bad government policy,” Fiorina has said.
One of the key planks in Fiorina’s job creation plan is allowing corporations that are holding cash overseas to repatriate it (bring it back to the U.S.) at a lower tax rate. At the moment, multi-national corporations are allowed to defer taxation on profits held overseas, then pay the full statutory tax rate when they bring that money back. In an AOL News op-ed yesterday, Fiorina once again called for letting corporations repatriate money at a lower tax rate, writing, “I have also proposed lowering the tax rate on repatriated corporate profits for businesses that reinvest those profits in capital equipment and job creation here in the United States.”
But Fiorina is leaving out a key fact: we already tried this scheme under the Bush administration, with less-than-impressive results. In 2004, Congress passed the Homeland Investment Act, allowing companies to bring back offshore profits in 2005 and pay a tax rate of just 5.25 percent, far below the 35 percent corporate tax rate. As the New York Times Floyd Norris wrote, the bill “was sold to Congress as a way to spur investment in America, building plants, increasing research and development and creating jobs.”
However, according to work done by the National Bureau of Economic Research, 92 percent of the nearly $300 billion that companies brought back went to share buybacks and increased dividend payments, not investments or job creation.
Now, in her plan, Fiorina says that she would limit the repatriation to businesses “that re-invest those profits in capital equipment and job creation here in the United States.” But Kristin Forbes, one of the authors of the NBER study, said that restrictions in the Homeland Investment Act regarding how repatriated money could be spent “seem to have been completely ineffective”:
“Dell was a great example,” she added, referring to Dell Computer. “They lobbied very hard for the tax holiday. They said part of the money would be brought back to build a new plant in Winston-Salem, N.C. They did bring back $4 billion, and spent $100 million on the plant, which they admitted would have been built anyway. About two months after that, they used $2 billion for a share buyback.”
Fiorina’s repatriation scheme, if history is any indication, will be nothing but a boondoggle, losing billions in federal revenue to line the pockets of corporate executives. It’s not a serious job creation proposal.