To bring corporate profits home, keep Kerry on road
March 23, 2004

The Senate, including Democratic presidential nominee Sen. John Kerry (Mass.), is in a position this week to do more than just blather about lost jobs, outsourcing and competitiveness. But in a world where talk often seems more important than action, one can only wonder if the Senate will act.

It isn't all that often that Congress comes upon a problem that it can actually solve with a simple change in the law, but the problem of U.S. corporations balking at the idea of bringing their foreign earnings home to invest here is one, and this week the Senate is continuing a debate on whether to solve it.

More than $500 billion in earnings by U.S. corporations doing business abroad is currently being invested overseas in places like Korea, China and France to create jobs in those countries rather than being “repatriated” or brought home to be invested in, say, Ohio and North Carolina. This isn't being done by corporate “Benedict Arnolds” selling out to foreign interests, as Kerry would have it, but because our tax laws penalize those corporations that might otherwise want to invest their profits here.

The current law works like this: Corporations wishing to bring their overseas earnings back to this country have to pay taxes equal to the difference between what they have already paid in the country where they earned the money and 35 percent. In most cases, this means they have to pay about 25 percent in additional taxes if they want to bring their profits home. Most choose not to pay the taxes when they can simply reinvest their profits abroad.

That's the problem. The solution seems both simple and obvious: remove the disincentive and let Americans rather than foreigners reap the advantages of our success in world markets. The Senate voted to do just that last October by a rather surprising 74-24 vote that saw senators of both parties acting to solve a problem rather than just talk about it.

What they wanted to do then was to give corporations a one-year window during which they could repatriate overseas profits without paying more than about 5 percent in additional taxes. The result of that change would, according to independent analyst's trigger the return of $300 billion to $400 billion dollars and boost domestic gross domestic product, investment and job creation. In fact, one estimate suggests that this change would create nearly 600,000 new jobs over the next four years, strengthen the stock market and actually reduce the federal deficit.

The Senate added the provision to last year's tax bill, but it didn't make it through the House. Its supporters are trying again right now. This year, if it gets through the Senate, it is believed that the House will go along and we will have taken one small step to improve this country's ability to compete in world markets without hurting our domestic economy.

Sound like a no-brainer? One would think so, but there are those in Congress who are less interested in actually solving problems than in grandstanding. Given a choice between removing the roadblock and trashing domestic corporations for their unwillingness to make dumb economic decisions, they'll opt for the latter course almost every time.

It should be noted that while the measure enjoyed widespread bipartisan support last fall, Kerry opposed it and, as the Democrats' presumptive standard-bearer, might this time be able to convince some of his colleagues to abandon good sense in the name of partisanship. Democratic senators who supported the measure last year included such folks as Evan Bayh (Ind.), Barbara Boxer (Calif.), Chris Dodd (Conn.) and Patty Murray (Wash.). It will be interesting to see whether they will be as willing to vote again this year for a measure they know will help the economy with their new leader opposing it.

Of course, they could be saved from having to make such a hard choice if Kerry reverses himself, which, I am told, he doesn't hesitate to do for political reasons, but which might be harder to do just because doing so would be the right thing to do.

Or there's the other possibility. He hasn't been seen in the Senate much this year, and maybe he won't make it to work on the day of the vote. That may be all that reasonable men and women of either party can expect.

Keene, chairman of the American Conservative Union, is a managing associate with Carmen Group, a D.C.-based governmental-affairs firm (www.carmengrouplobbying.com).