TN businesses could benefit from proposed tax holiday on overseas profits

The Tennessean | By Getahn Ward

With at least $73 million in cash sitting outside the United States, filter maker Clarcor Inc. has a keen interest in the congressional debate about a possible $1 trillion tax holiday to encourage U.S. companies to bring home profits from overseas operations.

It’s likely that the Franklin-based manufacturer with sales from China to Brazil would bring more of its overseas money back if Congress passed a bill to significantly lower the tax rate on profits repatriated from foreign shores, said David Fallon, Clarcor’s chief financial officer.

Fallon, however, isn’t sure that the money from overseas — where Clarcor has 30 percent of its overall sales in places such as China, Mexico, Brazil and India — would be used to create jobs or expand U.S. operations.

“For other companies who are cash-constrained, the impact probably would be a little more significant,” he said, adding that Clarcor has enough other cash and capital here already to handle its domestic needs.

Still, the tax holiday idea has sparked hot debate nationally among individual taxpayers who see it as a corporate giveaway versus supporters who say it would boost U.S. tax collections and spur domestic hiring and fresh business investment here.

Generally, U.S. companies bringing home foreign earnings have to pay up to 35 cents of every dollar in taxes depending on the rate at which those profits are taxed in the foreign nations where the firms operate.

Creating a so-called “holiday” with a much lower tax rate would encourage companies to bring home more than $1 trillion from foreign lands, supporters say.

Businesses watch bill

In Clarcor’s case, if money couldn’t be repatriated to the U.S., it probably would be used to fund a foreign acquisition as the company’s business picks up and the world economy recovers, Fallon said.

Meanwhile, tire maker Bridgestone Americas Inc., which has factories and sales offices in places such as Argentina, Brazil, Costa Rica, Canada, Mexico and Venezuela, says a tax holiday could help.

“It gives us the ability and some additional flexibility to move some money around in a way that benefits the business,” said Dan MacDonald, a company spokesman in Nashville.

Paula Angelo, a spokeswoman with Nissan North America, was coy, saying it’s too early for the company to weigh in with an assessment of the matter.

“We’ll continue to monitor the situation, but, for the moment, we have nothing more specific to share on the topic,” she said.

Temporary tax rate cut

Supporters of the corporate holiday — something akin to the tax-free, back-to-school shopping weekends that Tennessee and other states routinely sponsor — say it would help the federal government collect at least some taxes on money that would otherwise stay offshore.

Margo Thorning, chief economist at the American Council for Capital Formation, called the tax holiday idea “like a free stimulus bill — money that we wouldn’t see otherwise.”

Others say a tax holiday seven years ago did little to spark the U.S. economy.

“What it seems like (is) it’s a way for Congress to feel like they’re doing something when in fact it’s making matters worse,” said Nicole Tichon, executive director of the Tax Justice Network, which lobbies against tax havens and tax avoidance.

A bill introduced in Congress this month by U.S. Rep. Brian P. Bilbray, R-California, proposes a temporary zero percent tax rate for funds brought back to the United States and invested in research and development, new manufacturing and facility expansions.

If a company wishes to use money brought back entirely at its own discretion, it would be subject to a 5.25 percent nominal tax rate.

Tichon calls the tax holiday idea “a Band-Aid” when what’s actually needed is a major overhaul of the U.S. tax system to make sure corporations pay a fair share on what they make.

“Right now, companies can deduct their business expenses from operating overseas — that gives them an incentive to keep jobs overseas as well as profits,” Tichon said.

Gibson likes idea

Other Nashville-area companies evaluating the potential impact of a tax holiday include Gibson Guitar, the guitar maker that has profitable subsidiaries in Europe and Asia.

“With the legislation, it would enable us to re-deploy the benefit to further expand in the United States, as well, because we’re growing everywhere,” said Dave Rodems, Gibson’s chief financial officer.

Rodems declined to reveal how much profits are kept in Gibson’s overseas operations but said some of that money is reinvested abroad.

Franklin-based aluminum producer Noranda has mining operations in Jamaica, but Robert Mahoney, the company’s chief financial officer, said a tax holiday here wouldn’t have much impact.

Odds may be falling

Some observers say the odds of a tax holiday passing Congress may be waning.

Last week, the Obama administration rejected the latest effort.

U.S. Treasury officials had said they would only consider letting U.S. companies pay a reduced tax rate on profits earned overseas as part of a broader overhaul of the U.S. corporate tax code.

Even tax holiday proponents — such as the American Council for Capital Formation — say something should be done longer-term about corporate tax rates in the United States.

Thorning, the economist who speaks for that pro-business group, argued that U.S. taxes on businesses are higher than in any other industrialized country except Japan.

“As long as our tax rate is so much higher than other countries, companies are unlikely to bring offshore earnings home — especially in today’s uncertain environment about tax policy, deficit reduction and environmental policies,” Thorning said.