Letter to House Opposing Delaney’s “Partnership to Build America Act”

The Financial Accountability and Corporate Transparency Coalition (FACT Coalition) sent a letter to House lawmakers Tuesday urging them to oppose the “Partnership to Build America Act,” or similar successor legislation, which is expected to be re-introduced by Rep. John Delaney (D-MD) in the near future. The full letter can be read below or downloaded here.

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Download Letter as PDF

February 7, 2017

Member of Congress
U.S. House of Representatives
Washington, DC 20515

RE: Oppose Rep. Delaney’s Partnership to Build America Act Tax Giveaway

Dear Representative:

We are writing to you on behalf of the Financial Accountability and Corporate Transparency Coalition (FACT Coalition) to urge you to oppose the “Partnership to Build America Act”[1], or similar successor bill, which calls for a “repatriation tax holiday” allowing U.S. multinational corporations to pay no tax on the profits that they’ve booked offshore if a fraction of the money is used to buy bonds in an infrastructure bank.

The FACT Coalition is a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system that addresses the challenges of a global economy and promotes policies to combat the harmful impacts of corrupt financial practices.[2]

The Delaney bill offers a costly and unwarranted tax amnesty to some of the most profitable corporations in America. It would permit a small number of multinational corporations — who have used tax loopholes unavailable to working Americans and small businesses — to escape their obligations to society, thereby requiring domestic corporations, small businesses, and average taxpayers to pick up the tab.

Under this proposal, multinational corporations would be allowed to bring back up to $6 at a zero percent tax rate for every $1 in bonds purchased, with the exact ratio to be determined by an auction. The proposed bidding process would open the door to gaming and collusion. The bonds would further reward tax-dodging multinationals by paying them interest. Contrary to proponents’ claims, the bonds would not offer a cost-free way to capitalize an infrastructure bank. The bill instead offers multinationals a tax cut worth up to $105 billion to capitalize a $50 billion bank.

While an infrastructure bank capitalized through traditional government expenditures could help finance needed infrastructure investment, an infrastructure bank capitalized in the manner set out in the bill would, over time, undermine our ability to make public investments by further incentivizing aggressive offshore tax avoidance. Worse, if the bill mirrors the last proposal and permits seven of the 11 members of the infrastructure bank’s board of directors to come from the companies repatriating the most money, the bill may hand over control of the investment bank to those who have already shown their willingness to put their own self-interest ahead of the vast majority of taxpayers. This bill would not solve a problem; it would make current problems worse.

The tax amnesty would also reward those who have most-abused corporate tax loopholes — shifting profits on paper to offshore subsidiaries in tax havens where they pay little or no tax. Many of these offshore subsidiaries have few, if any, employees and no meaningful operations or physical presence beyond a post office box. In addition, it would favor a very narrow corporate sector. Because so few U.S. corporations keep substantial funds offshore, when Congress last offered a tax holiday in 2004, just .015 percent of U.S. companies took advantage of it, with 15 large companies accounting for half of the offshore cash repatriated, according to the Senate Permanent Subcommittee on Investigations (PSI).[3]

History has shown that this type of tax amnesty scheme will not create U.S. jobs or spur additional investment. The 2004 repatriation holiday was justified on those grounds, but proved to be a failure. Many of the companies that benefitted most actually reduced the number of their U.S. employees over the following two-year period, and there were no investments in production capacity or research and development, according to the Senate PSI.[4] Instead, a study by the National Bureau of Economic Research found that 92 percent of the cash that was repatriated paid for dividends, stock buybacks, or executive bonuses — funds that primarily benefited corporate executives and fueled income inequality.[5] The bill pretends to mitigate some of the likely damage to the U.S. Treasury by tying a fraction of the repatriated dollars to the purchase of bonds in the new infrastructure bank. However, the bill also proposes to pay interest on those bonds, while the remainder of the profits will be repatriated tax-free with no expected benefits to the economy from this giveaway to a small number of the best-connected and most-profitable companies.

If the same multinationals were simply required to pay the tax they already owe on their offshore profits, they would contribute as much as $700 billion in taxpayer revenues — enough to pay for a robust infrastructure program without the debt represented by interest-paying bonds and without turning over an infrastructure bank to the very companies whose tax dodging has made federal investment so difficult.

Instituting another tax amnesty instead — as this proposal does — would simply encourage corporations to be even more aggressive in moving jobs and profits offshore in anticipation of a future tax amnesty, losing even more taxpayer revenue and adding to the deficit. In fact, the 20 companies that repatriated the most earnings under the 2004 holiday are among those that have most aggressively moved profits offshore in anticipation of the next holiday. Fortune 500 companies now have over $2.5 trillion parked in offshore bank accounts — more than double the amount held offshore in 2009.[6]

In 2015, the Joint Committee on Taxation estimated that a tax amnesty program would add $118 billion to the deficit.[7] That cost has only grown since then, as untaxed profits booked offshore have continued to climb.

Again, we urge you to reject Rep. Delaney’s Partnership to Build America Act, or any similar successor bill. The bill would enable highly profitable, multinational corporations to escape their tax obligations and gain access to interest-paying bonds, while shifting more of the tax burden onto working Americans, small businesses, and wholly domestic firms.

A better approach would be to close the loopholes that now enable corporations to indefinitely defer paying the taxes they owe and encourage the offshoring of corporate profits, operations, and jobs.[8] Ending deferral alone could generate over a trillion dollars in revenues that could pay for infrastructure without giving multinational corporations an unwarranted tax amnesty or interest-generating bonds.[9]

Thank you for your consideration. For more information, please contact Clark Gascoigne at cgascoigne@thefactcoalition.org.

Sincerely,

Gary Kalman
Executive Director
The FACT Coalition

Clark Gascoigne
Deputy Executive Director
The FACT Coalition

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Footnotes:

See H.R.413, 114^th Congress.
For a full list of FACT members, see: https://thefactcoalition.org/about/coalition-members-and-supporters/
Permanent Subcommittee on Investigations. “Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals.” Washington, DC: U.S. Senate Committee on Homeland Security and Governmental Affairs, October 2011 (available at http://www.hsgac.senate.gov/download/report-psi-majority-staff-report_-repatriating-offshore-funds-oct-2011).
Ibid
Ibid
Phillips, Richard, Matt Gardner, Kayla Kitson, Alexandria Robins, and Michelle Surka. “Offshore Shell Games 2016: The Use of Offshore Tax Havens by Fortune 500 Companies.” Washington, DC: Citizens for Tax Justice, Institute on Taxation and Economic Policy, and U.S. PIRG Education Fund, October 2016 (accessible at http://ctj.org/pdf/offshoreshellgames2016.pdf).
Joint Committee on Taxation, Estimated Revenue Efforts of a Proposal by Senator Rand Paul and Senator Barbara Boxer for a Temporary Reduced Rate on Certain Dividend Repatriations from Foreign Subsidiaries of U.S. Corporations (accessible at https://www.jct.gov/publications.html?func=startdown&id=4797)
See, for example: The FACT Coalition. “Briefing Memo: Tax Reform – Important Steps to Fix the Gaming of the Corporate Tax System.” Washington, DC: January 2017 (accessible at https://thefactcoalition.org/briefing-memo-tax-reform/).
Americans for Tax Fairness and the Economic Policy Institute, “Corporate Tax Chartbook: How Corporations Rig the Rules to Dodge the Taxes They Owe,” (accessible at http://americansfortaxfairness.org/corporate-tax-chartbook-how-corporations-rig-the-rules-to-dodge-the-taxes-they-owe/)

About the FACT Coalition

The Financial Accountability and Corporate Transparency (FACT) Coalition is a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system that addresses the challenges of a global economy and promotes policies to combat the harmful impacts of corrupt financial practices.

Download Letter as PDF