Small Businesses Bash 'Tax Holiday' Plan For Corporate Titans

WASHINGTON -- Debra Ruh runs TecAccess, a small business that works with large companies and the federal government to help make their tech products accessible to people with disabilities. The 11-year-old central Virginia-based operation has always been small -- at its peak before the economic crash, Ruh had 35 employees. Ruh says she always reached out to workers who themselves lived with disabilities. The cause is close to Ruh's heart: Her 24-year-old daughter was born with Down Syndrome. But it's also good business: People with disabilities can tell when a new product does or does not work well.

But TecAccess took a huge hit with the recession. TecAccess's most important lender, Virginia Business Bank, failed, taking down her line of credit with it. Since then, she's been struggling to get the credit needed to fund basic operations. Although she runs about $2 million a year in total sales, Ruh's costs made the firm unable to keep employing 28 of her workers. Today, she's down to seven employees.

"We need to hire people, but we don't have the cash or the credit to do it," Ruh says.

Things could be worse. Unlike many small businesses, TecAccess has actually survived the crash. But Ruh is frustrated with the current debate over fixing the U.S. economy, which seems to be focused on tax perks for the wealthy and large corporations, while ignoring the plight of ordinary workers and small firms like her own. Any proposal that might have any small chance of creating jobs or stimulating the economy seems to require huge front-end profits for corporate titans.

Case in point: the current quarrel over a corporate tax "repatriation" holiday. The plan is widely viewed by economists, tax experts and small business owners as a useless government giveaway to a handful of multinational corporate behemoths. But several companies and a Wall Street friendly think tank are now touting the idea as a new "stimulus" to create jobs.

Lobbyists for Microsoft, Oracle, Pfizer, Apple and other major firms are currently pushing to inject the holiday into congressional negotiations about raising the federal debt ceiling. The companies say they currently have about $1 trillion in cash stashed abroad that they are unwilling to bring back to the U.S. at the statutory 35 percent corporate tax rate. But if Congress will grant companies a one-time tax holiday, allowing that money to be brought back to the states at a rate of about five percent, companies would be willing to do it. Corporate titans acknowledge that they'd be getting a sweetheart deal, but they say as it stands, the U.S. is never going to get their money anyway.

"Bring the money back," says Doug Thornell, and adviser for the WinAmerica Campaign, a group of about a dozen multinational companies and several trade groups lobbying for the holiday.

The trouble is, this has been done before, and it didn't work. In 2004, Congress approved almost the exact same plan. According to an review by economists Roy Clemens and Michael Kinney for Tax Analysts, a total of 364 companies brought back $284 billion of overseas cash for the 2004 tax holiday. But even during the economic boom years of the housing bubble, the fresh cash did not create new jobs or investments. Instead, the economists say, companies simply used the cash to enrich their shareholders, using the money to buy up their own stock, driving share prices higher.

A 2009 paper by three researchers with the National Bureau of Economic Research came to a similar conclusion: "A $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders," the researchers wrote.

What's more, an April analysis from the Center on Budget and Policy Priorities found that 10 of the biggest players in the WinAmerica Coalition are sitting on a combined $47 billion in domestic cash. If the companies aren't using their excess U.S. cash to create jobs, they aren't very likely to spend any money they bring in from overseas on jobs, either.

"Big businesses, they're not sitting around going, 'God we've got this market opportunity, and I wanna hire people, but I don't have the money to hire people,' " says Brian Setzler, President of TriLibrium, a business advisory firm based in Portland, Oregon, that mostly works with small firms. "They're sitting on cash. And if there were market opportunities there, they'd deploy it."

Cutting the tax rate from 35 percent to 5 percent represents about an 85 percent reduction in the amount companies would have to hand over to Uncle Sam. While the Congressional Budget Office has not analyzed the implications of such a move for the federal budget deficit, the Joint Committee on Taxation, a nonpartisan congressional committee focused on tax policy, has. The committee's conclusion? "Bringing the money back" would actually cost the government $78.7 billion over ten years, as companies scored a sweetheart tax deal on cash they planned to bring back to the country anyway.

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Source: Huffington