Sunday, July 24, 2011

Big Corp Tax Loophole Closer #12: Foreign Earnings Repatriation Recapture Tax from US Jobs Lost

In the American Job Creation Act(AJCA) of 2004, there was a very controversial provision that permitted US multinational corps to repatriate their previously unremitted foreign earnings. The emphasis here was that the US multinational would then be able to create US jobs from the many billions of dollars of funds that would be repatriated to the US.

Clearly, this was a boondoggle. Multinational corps like Microsoft, Pfizer and the like had previously shifted their taxable income from the higher tax rate US to substantially lower tax rate in places like Ireland, Singapore, Hong Kong, and yes even Puerto Rico.

Normally, when these foreign earnings are repatriated, the dividend received in the US is taxed at the much higher US federal income tax rate. However, in this AJCA Act of 2004, due to effective lobbying by these large corps, these multinationals were able to repatriate, for a one year window, their foreign earnings with 85% of the dividends received being tax free.

Needless to say, very many multinationals corps took advantage of this, and mostly to the maximum extent possible.

The overwhelming majority of these multinational corps have not created US jobs with this additional money being available in their US coffers. Thus, given the horrible US debt situation, I think there should now be a recapture tax related to some of this massive tax benefit received, computed based on the extent US jobs that have been lost by these US companies subsequent to these repatriations.

Computing this recapture tax gets a bit tricky. Here is how I would do it. I would want to have five separate year computations, the first one in 2011.

First, I would get a total US full-time employee job count of each of these companies immediately after they received the foreign earnings repatriation funds in the US. And then I would get a total US full-time employee job count for each of these companies at the end of 2011. And then for these companies that have lost US jobs over this roughly six or seven year period, the 2011 recapture tax would be computed by multiplying this company’s foreign earnings repatriation tax loophole received (i.e. the dividend received X 85% X 35%) X twice the % of US jobs lost over this period.

And then for each of the next four years, a similar recapture tax computation is made but for the % of US jobs lost in each year. Thus, the end result, if a company has lost US jobs consistently for the first six or seven year period, and also in each subsequent year for four years, it would be paying five years of foreign earnings repatriation recapture tax. And then for a company that has created jobs consistently over the entire period, it wouldn’t have to pay any recapture foreign earnings repatriation tax in any year. But these US jobs created can’t be from business acquisitions….you back them out.

All the money raised here from this recapture tax of these large US multinational corps will be used to reduce the US Deficit.