Tuesday, January 11, 2011

Big U.S. Tax on Overseas Earnings Means Fewer Jobs Here, Finance Pros Say

/PRNewswire/ -- U.S. corporations are making fewer domestic hires and investing less in U.S. operations, due to cash trapped overseas, according to a recent survey from the Association for Financial Professionals (AFP). High U.S. corporate tax rates create an incentive for companies to leave cash abroad, often permanently.

In follow-up questions to AFP's recent 2011 Business Outlook Survey, 26% of respondents with operations abroad say that excessive U.S. corporate tax discourages their organization from bringing cash back to the U.S. and using it to invest in corporate growth in the form of new hires, capital investments, or research and development.

Proponents of the current tax rates on repatriated foreign earnings say the tax deters companies from making investments in non-U.S. operations and stems the flow of American-based jobs overseas, but AFP members indicate that this is not the case. Of those with non-U.S. operations responding to the survey, two-thirds indicate that the tax on repatriated foreign earnings at current rates has little to no impact on the decision to begin or continue operations outside of the U.S.

"Capital is mobile. Companies have choices about where to locate and where to invest," said Jim Kaitz, AFP's president and CEO. "For U.S. companies to grow domestic operations and make hires here, AFP believes that the current corporate tax regime must become competitive with that of other nations."

In a January 2011 policy statement, AFP said that U.S. companies should be permitted to repatriate foreign earnings at a tax rate that allows the U.S. to compete for investment of those earnings with other countries that tax those earnings at significantly lower rates. AFP recently delivered the same message to members of the 112th U.S. Congress, the White House and staff of the U.S. Treasury.

Since U.S. companies can choose when and if ever to repatriate earnings that are taxable in the U.S., the lost tax revenue is extremely low. In fact, a more favorable tax treatment might increase tax revenue in both the short- and long-term because companies would no longer have a strong incentive to avoid high U.S. taxes by reinvesting foreign earnings elsewhere. The likely inflow of capital to the U.S. could stimulate capital investment and hiring, contributing to economic recovery and long-term economic growth.

Reported estimates have U.S. corporations holding $1 trillion in cash and cash-like investments abroad.

AFP members, who are responsible for ensuring that their organizations have enough cash on hand to fund operations, are uniquely positioned to observe the cash flows of their organizations, and many of them are directly responsible for tax-related issues. Since they work in a wide range of industries and in both public and private organizations of varying sizes, their opinions reflect a broad corporate perspective that is both operational and strategic.


From November 29 through December 10, 2010, the AFP surveyed U.S. financial professionals about current and expected business conditions in the U.S., then sent follow-up questions based upon policy issues, which included corporate tax issues for repatriated cash and floating NAV for money market funds. These two issues are the focus of the 2011 AFP Business Outlook Survey Policy Supplement. The original survey generated 808 responses from professionals holding a variety of financial positions within their organizations, including CFO, vice president of finance, treasurer and assistant treasurer. The results produce a margin of error of +/- 3.4 percent.

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