92 Percent Of Corporate Tax Break Meant For Domestic Investment Went To Pay Dividends, Buy Shares

Back in April, researchers at the University of Kansas released a report showing that for every dollar corporations spent lobbying for a particular income tax break in 2004, they saved $220 in taxes. The goal of providing the tax break — as expressed by the corporation’s lobbyists — was that the money saved would be invested in domestic productions. Congress believed that this is where the money would go, and thus the tax break — which allowed corporations to repatriate overseas earnings at far below the normal tax rate — was granted.

Well, analysts at the National Bureau of Economic Research took a look at what the corporations actually did with the money and it turns out that domestic investment was not high on the list:

Now the most detailed analysis of what actually happened — using confidential government data as well as corporate reports — has estimated what happened to the $299 billion companies brought back from foreign subsidiaries. About 92 percent of it went to shareholders, mostly in the form of increased share buybacks and the rest through increased dividends. There is no evidence that companies that took advantage of the tax break…used the money as Congress expected.

Incidentally, the law “specifically said the money could not be used to raise dividends or to repurchase shares.”


Kristin J. Forbes, an economics professor at the Massachusetts Institute of Technology and one of the authors of the study, said that “the restrictions on how the money will 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.”

The researchers do “say their findings did not indicate that any companies violated the law barring use of the money for share repurchases and dividends.” Even if that’s the case, this is one more example of corporation’s gaming the tax system and using their huge presence in Washington to unduly influence tax policy. These numbers should be brought up again and again as the debate over the Obama administration’s corporate tax reforms proceeds.