Wednesday, October 13, 2004

jobs creation--or not - Tax Windfall May Not Boost Hiring Despite Claims:

"Big companies long lobbied for a tax cut on their overseas profit as a way to spur U.S. job growth. But now that it has been granted, much of the windfall won't go toward hiring but for such uses as strengthening balance sheets, buying back shares and making acquisitions.

The one-year break, included in a sweeping tax bill that cleared the Senate and went to the president this week, will allow hundreds of billions of dollars in overseas profit to be brought home by dozens of U.S. companies at a steeply reduced tax rate. By some estimates, U.S. companies have parked as much as $500 billion in profit abroad to avoid taxes back home.

Companies say the repatriated money, which would be taxed at a 5.25% rate instead of 35%, will provide stimulus and better position them for hiring in the long run. Software company Oracle Corp., for instance, likely will use some of the billions it will bring home to help finance its aggressive acquisition strategy. Computer maker Hewlett-Packard Co. says it may devote a substantial portion of the several billion dollars it plans to bring back to paying down debt from its purchase of Compaq Computer Corp. -- a transaction that led to layoffs.

The Bush administration has been lukewarm about the tax bill, though President Bush, who has been attacked by Democratic opponent Sen. John Kerry over sluggish job growth during his administration, is expected to sign it.

The repatriation provision is among the most far-reaching of the many business tax breaks included in the sweeping bill, formally dubbed the 'American Jobs Creation Act of 2004.' ""Companies say"??? Well, heck, I'm sure we can trust the word of a megacorporation when billions of dollars are at stake.

Note that the different between 5.25% and 35% is 29.5%. On $500B, the tax break is $147.5B--for one year.