Just like my Job Creation Proposal #4 on Jobs Tax Credit Funded by Foreign Earnings Repatriation, this proposal also puts in some fair and measured tax incentives to make this foreign earnings repatriation much more economically attractive to US multinational corps. And its focus is on stimulating US capital expenditures of these US multinational corps early in 2010, and particularly so in the key manufacturing sector.
Under this proposal, a US multinational corp repatriating some of its foreign earnings in calendar year 2010, needs to first compute its preliminary manufacturing tax credit earned in each quarter of 2010. The resultant total manufacturing tax credit computed for the entire year 2010 cannot exceed the incremental federal income tax for 2010 caused by the foreign earnings repatriated in 2010, over and above the like amount caused by the Jobs Tax Credit Funded by Foreign Earnings Repatriation, in my Job Creation Proposal #4.
This proposal works quite a bit similar to the way my Job Creation Proposal #4 on Jobs Tax Credit Funded by Foreign Earnings Repatriation works. However, the manufacturing tax credit as a percentage of the cost of eligible property placed in service replaces the jobs tax credit.
Eligible property is all new property depreciable under MACRS that has a Recovery Period of seven years or less (i.e. Three-Year Property, Five-Year Property, and Seven-Year Property), all external computer software, all external computer software development costs, all external web site development costs, and all manufacturing plant facility costs. The property must be placed in service in the US in 2010. To be eligible property, all of the R&D work related to this property must be performed in the US.
The amount of a US multinational corp’s 2010 Total Manufacturing Tax Credit, before testing for Foreign Earnings Repatriation Tax, should be based on the following percentages of the cost of eligible property placed in service, applied to each 2010 quarter, as follows:
Manufacturing Plant Facilities and all Eligible Property Contained Therein:
…..1Q…..20%
…..2Q…..18%
…..3Q…..16%
…..4Q…..14%
All Other Eligible Property:
…..1Q…..10%
…..2Q….. 9%
…..3Q….. 8%
…..4Q….. 7%
Let me illustrate how this proposal would work for a multinational corp.
Assume that after applying all of the percentages to all of the eligible property placed in service in 2010, the total manufacturing tax credit comes to $200 mil.
Also, assume that the 2010 Total Additional Federal Income Tax due to the Foreign Earnings Repatriation is $600 mil and that the Federal Income Tax due to the Foreign Earnings Repatriation applied to the Jobs Tax Credit Funded by Foreign Earnings Repatriation is $350 mil.
Thus, the Total Additional Federal Income Tax due to the Foreign Earnings Repatriation to use in computing the Manufacturing tax credit is the excess, or $250 mil (i.e. $600 mil – $350 mil).
The final 2010 Total Manufacturing Tax Credit Earned is the lower of this $250 mil excess and the total manufacturing tax credit of $200 mil, computed before testing for Foreign Earnings Repatriation. Thus, the Manufacturing Tax Credit Earned in 2010 is $200 mil.
If instead this excess ended up being say $180 mil, the Manufacturing Tax Credit Earned in 2010 is $180 mil.
Another key benefit here is that these multinationals will also be able to take advantage of my Job Creation Proposal #1 on Bonus Tax Depreciation. And remember, I put a really nice favorable twist in my Job Creation Proposal #1 related to bonus tax depreciation on Manufacturing Plant Facility Costs.
Whoa! A Four Bagger....Manufacturing Tax Credit, plus Jobs Tax Credit, plus Bonus Tax Depreciation, plus getting to some locked-up Foreign Cash......and helping the country get out of its economic crater, to boot. The tax incentives are a bit better for these multinational corps than for pure domestic corps because the multinational corps' tax incentives are paid for by the foreign earnings repatriation tax.
However, for multinational corps repatriating foreign earnings in 2010, this Job Creation Proposal #5, along with my Job Creation Proposal #4 on Jobs Tax Credit Funded by Foreign Earnings Repatriated Tax, will be used instead of my Double Barreled or Triple Barreled Job Creation Proposals #2 and #3.
The CBO score of this proposal will be positive.
The total cost outflow of the manufacturing tax credit earned cannot exceed the additional federal income tax related to the foreign earnings repatriation.
And, in addition, States will be receiving substantial cash inflows from these multinational corps due to the taxable dividend resulting from the foreign earnings repatriation. And if States decide to include the Manufacturing Tax Credit in these multinational corps’ taxable income, they will receive even more funds. Because of the much improved State finances here, the US government will be able to reduce its funding for State Unemployment and Other Related State benefits.
