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Washington, D.C. - To encourage more investment in American jobs and stimulate the economy now, U.S. Congressman Kevin Brady (R-TX) joined Representative Phil English (R-PA) in a joint press conference in support of H.R. 767, The Homeland Investment Act of 2003. Compared to other countries, the United States taxes its own companies heavily when they bring back profits earned overseas. This legislation temporarily lessens the penalty for one year to encourage new investment in America.
"Our goal is to significantly boost America's economy right now by encouraging U.S. businesses to bring home cash from their foreign subsidiaries for investment within the United States. Leaving ready American cash stranded overseas during this critical period of economic recovery makes no sense," said Brady, a Deputy Whip and member of the House Ways and Means Committee.
"To put it in perspective, this single change would boost American investment in the next year by ten times the size of our national highway construction program, so it is real dollars and real jobs when we need it the most", said Brady.
According to Congressman English, a new study by J.P. Morgan estimates new investment could top $300 billion.
BACKGROUND: The Homeland Investment Act would reduce for one year the tax rate on foreign earnings by American companies to 5.25 percent. Currently, U.S. firms operating overseas pay a 35 percent tax minus any taxes they've paid abroad when they bring foreign earned income back to the U.S. Obviously, companies can avoid paying any U.S. taxes simply by leaving that money abroad. Economists estimate that hundreds of billions of dollars in profits are "stranded" abroad.
On Friday, the U.S. Labor Department is expected to report the unemployment rate for April rose to 5.9 percent from 5.8 percent in March. The Homeland Investment Act would inject job creating capital into the economy, when Americans need it most.
Homeland Investment Act (H.R. 767) General Summary
Current Law
Under current law, U.S. companies are required to pay tax on foreign subsidiary earnings when these earning are brought back to the U.S. to the extent that there is any shortfall in the tax paid abroad and the 35-percent U.S. tax rate. U.S. companies are left with only 65-percent of foreign earnings when foreign earnings are brought back into the U.S. Many other countries exclude foreign dividends from domestic taxation, which encourages investment of foreign earnings. As a result of the U.S. tax law bias, earnings of U.S. foreign subsidiaries are invested in the country of production, as opposed to repatriation.
Proposal
As a temporary replacement of the current 35-percent rate, the Homeland Investment Act would effectively impose, for one year, a 5.25-percent toll tax on dividends in excess of normal distributions from foreign subsidiaries. U.S. companies would forego 85-percent of foreign tax credits otherwise allowable with respect to these dividends. This is necessary to ensure the companies are not taxed less than 5.25-percent. The excess of normal distribution will be determined by an average of the distributions of the foreign subsidiaries over the previous five years.
The one-year window will provide a stimulus. The 5.25-rate applies to the first taxable year of the corporation ending 120 days after enactment. The Joint Committee on Taxation estimates that the proposal would bring an additional $135 billion of foreign earnings in the one-year period after enactment.
The cost of the Act would be as follows:
* $4.1 billion revenue raised in first year
* $1.8 billion cost through 5 years
* $3.9 billion cost through 10 years
Benefits:
The proposed change would provide an immediate benefit by increasing the dollars available for current business needs at home. It would do so by:
* Increasing domestic investment in plant, equipment, and R&D;
* Increasing funding for pension plans depleted by decline in the stock market;
* Reducing domestic debt loads, strengthening corporate balance sheets, and lowering corporate bond rates;
* Increasing dividends to shareholders, which could productively be redeployed; and
Raising equity market valuations by increasing funds available for share repurchases} |
