Big Boys Duke It Out

Some of the biggest titans of industry are currently in brawl over a ton of money. As is usual in America, when powerful forces get into a fight they turn to their lawyers (and lobbyists) to do the actual punching. While this may appear to be civil, it’s not. There’s too much at stake.

The issue is the $1 trillion of earnings that corporate America has piled up outside of our borders. This money represents the profits from foreign activities that have not been repatriated back home. This loot has already been taxed in the foreign jurisdiction where the profits have been made. The average tax on this pile of money is only 12%. To bring the money home would trigger an additional tax liability to the IRS equal to ~23% (35% marginal tax minus 12%, foreign taxes paid).

What’s at stake is $250 billion. With that much money on the table the big hitters get the best lawyers and lobbyists to “Get tough”.

On one side of this slug fest are 50 big companies including Apple, Cisco Systems, Devon Energy, Google, Microsoft, Oracle, and Pfizer. They are jointly represented by a slick lobbying outfit called WinAmerica. (link [12]) This is the mission statement of WinA:

Congress should pass legislation to offer an immediate reduction of taxation on income earned overseas by innovative American businesses to allow that money to be brought home and invested in the United States.

Gee! That sounds smart doesn’t it? Some details from WinAmerica:

Currently, there is over $1 trillion earned by American businesses trapped overseas. An essential first step would be to allow these worldwide American businesses the freedom to bring up to $1 trillion in global earnings home to invest it now into our still fragile economy.

Let’s be very clear on this. GOOG/AAPL/MSFT/GE etc. are pushing for a tax holiday. They want to bring all of their foreign profits back home and pay no US tax. This has been done before and there is very little evidence that those companies who benefited in the past actually invested in the US and created jobs. They paid dividends and reduced debt with most of the money.

On the other side of the tax holiday being pushed by WinAmerica are Kimberly-Clark, Zimmer, United Technologies and Caterpillar. Corporate officers of these big hitters testified on this matter to Congress. This group is arguing against a holiday. From a Newsweek [14] report:

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