Less Than Stimulating

When President Obama warned Republicans last week not to "come to the table with the same tired arguments and worn ideas that helped to create this crisis," one idea he may have had in mind is a second American Jobs Creation Act. The GOP proposal was rejected in the Senate last week, but lives on in conservative rhetoric.

The first AJCA, enacted under President Bush in 2004, allowed corporations with offshore profits to repatriate them at a steep tax discount – virtually a tax holiday. Like many conservative tax giveaways, the AJCA was supposed to create jobs and boost the economy. There were doubters.

In 2005, Phillip Swagel, former chief of staff on Bush's Council of Economic Advisers and tax holiday opponent told the Washington Post,

"There will be some stimulative effect because it pumps money into the economy … But you might as well have taken a helicopter over 90210 [Beverly Hills] and pushed the money out the door. That would have stimulated the economy as well."

Goldman Sachs dubbed it "no lobbyist left behind." Pharmaceutical companies, in particular, lobbied hard for the 2004 bill.

Republicans tried this year to insert a new repatriation provision into the pending stimulus bill. The Wall Street Journal weighed in, arguing that the AJCA had been effective:

A survey of several hundred of these companies found that they used, on average, 25% of those funds for U.S. capital investment, 23% for hiring and training of U.S. employees, 14% for U.S.-based R&D, and 13% for U.S. debt reduction.

Rep. Barney Frank (D-MA) and Sen. John Ensign (R-NV) debated the provision Sunday on NBC’s Meet the Press:

REP. FRANK: Thank you. Yes, they proposed repatriation. Let's explain what that is. It's letting American companies go overseas with their business, earn profits on the theory that under the law that says when you bring them back they'll be taxed, and saying, "Uh-oh, we changed our mind. You can go overseas, earn your profits, bring them back and pay virtually no tax." Now, we've done that once. They wanted to do it again. What that would be, would be an invitation to American companies to go overseas...

MR. GREGORY: OK.

REP. FRANK: ...earn profits, bring them back and pay virtually no taxes.

REP. PENCE: We did it once and it brought hundreds of billions into the economy.

Perhaps. But critics might disagree - both with Pence and the Journal - on the act's job-creation record.

Washington Post business columnist, Allan Sloan, reacted to the AJCA in 2006, saying, “Companies don't add jobs based on one-time chances to repatriate money from overseas.”

And they didn’t, according to Finance Committee Chairman, Sen. Max Baucus (D-MT), who argued against renewing the tax holiday. “The data shows that the last time we enacted something like this there were virtually no new jobs created in the United States. None.” Baucus continued, “Companies used this money for other purposes.”

North Dakota Democrat, Sen. Byron Dorgan rebranded the proposal: “There’s another phrase for repatriation; it’s called rewarding the outsourcing of jobs.”

So where did the repatriated money go the first time?

In part, into stock buybacks and acquisitions. Hewlett-Packard announced in August 2005 it would use $14.5 billion in repatriated assets for “strategic acquisitions.”

Robert S. McIntyre, a critic of corporate tax policy at Citizens for Tax Justice, questioned why "strategic acquisitions" would create jobs. "Usually it means layoffs. That's the strategic part," he said.

Pfizer announced it would use its tax holiday to buy back "up to $5 billion in common stock."

If that's not enough to suggest this tired argument and worn idea does not deserve a second chance, there is this from Sen. Carl Levin's office:

According to a January 2009 Congressional Research Service (CRS) analysis, [PDF] of twelve top repatriating companies, ten cut jobs even before the recent economic downturn. Pfizer repatriated $37 billion, more than any other company, yet closed a number of plants beginning in 2005 and cut 9,000 jobs in 2005. Merck repatriated $15.9 billion, but announced layoffs of 7,000 workers in 2005. Hewlett-Packard repatriated $14.5 billion and laid off 14,500 workers. Other top repatriating firms that announced job cuts include Procter and Gamble, PepsiCo, Motorola, Honeywell, Ford, National Semiconductor, and Colgate Palmolive.

According to the CRS report, "it is likely that a reduction in the tax on repatriated earnings falls into the less stimulative category." For workers at the companies listed above, that was certainly true.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future