Congress Considering One-Time Tax Cut For Repatriated Foreign Earnings

Several bills have been introduced in Congress to open a "window" during which U.S. corporations and individuals would be taxed at a rate of 5.25 percent on the repatriation of the earnings of controlled foreign corporations. Normally, the full U.S. corporate or individual income tax rate is imposed on the repatriation of such foreign earnings to the extent the earnings were not taxed abroad. The idea of the legislation is to encourage corporations to repatriate foreign cash for use in the U.S. economy.

This is not the first time a proposal like this has been introduced in Congress, but up to now such proposals have never made much headway. This year’s effort, by contrast, is attracting substantial bipartisan support in Congress. Sponsors range from liberal Democrats to conservative Republicans. The bipartisan support has helped to insulate the bills from criticism, especially from the left. House Ways and Means Committee Chairman Bill Thomas (R-CA) has been openly supportive of the bills, and the leadership of the Senate Finance Committee is also taking a close look at them. The bills arguably fit within either of the two likely themes for tax legislation in Congress this year—economic stimulus and foreign tax reform. Estimates are that the bills could trigger the repatriation of more than $100 billion, with modest long-term revenue loss to the government. In short, the legislation has a chance of enactment this year.

Any corporations or individuals that have funds in foreign corporations but cannot currently bring the funds home without an unacceptable tax burden should be paying attention to the legislation. Some large corporations already are aware of the bills, but many corporations, large and small, and most individuals, are not aware of the bills and may wish to contact their representatives in Washington to urge support for the legislation.