BlogWood: MT Archives

Are these guys on Prozac? Senate Panel Backs Bill to Give Tax Windfall to Eli Lilley, HP

Here’s a concise version of the NY Times article:

American corporations that have deferred taxes for years on the profits they made overseas could be in line for a huge windfall from Congress.

Hoping to bring more investment to the United States, the Senate Finance Committee approved a bill on Wednesday that would give a one-time tax holiday to companies that have accumulated as much as $400 billion in foreign profits on which they have yet to pay American taxes.

The Senate bill, which is part of a much broader bill to overhaul laws on international corporate taxation, would let companies bring those profits back and pay a tax rate of 5.25 percent.

But many tax experts, including top tax officials in the Bush administration, say the move would be a mistake because it would validate the strategies of companies that spent years sheltering the overseas profits.

"The company that left Louisiana is going to pay a 5 percent tax on the widgets they make overseas, and the company that stayed in Louisiana is going to pay a 35 percent tax," said Senator John B. Breaux, Democrat of Louisiana. "If that isn't an incentive to leave, I don't know what is."

Critics also warn that there is no guarantee that the companies will invest their repatriated profits in new factories or larger work forces. Indeed, Republican lawmakers defeated an amendment offered by Mr. Breaux on Wednesday that would have required companies to reinvest their foreign profits in things like new equipment.

Pamela F. Olson, assistant secretary of the Treasury in charge of tax policy, told lawmakers Wednesday that she was skeptical about the bill's benefits and warned that it could "undermine taxpayers' perception of the fairness of the tax system."

The biggest beneficiaries of the legislation would be technology companies like Hewlett-Packard and Intel as well as pharmaceutical giants like Merck and Eli Lilly.

Hewlett, which has been one of the bill's most visible supporters, says it has accumulated $14.5 billion in foreign earnings and has kept them outside the country, in part to avoid paying the American corporate tax rate of 35 percent.

Eli Lilly, whose products include the antidepressant Prozac, says it has $8 billion in untaxed overseas profits. Intel, another big supporter of the legislation, says it has deferred taxes on $6.3 billion of foreign income.