Wednesday, January 7, 2009

Congress Should Stimulate Economy With $500 Billion in Private Investment By Temporarily Reducing U.S. Business Taxes on Foreign Earnings

/PRNewswire-USNewswire/ -- The quest for cash to jumpstart the ailing U.S. economy could be alleviated if congress would revisit the 2004 successful economic stimulus measure that enabled U.S. businesses to invest $360 billion of foreign earnings at a temporary, reduced tax rate of 5.25%. In a new study commissioned by the American Council for Capital Formation (ACCF), renowned economist Dr. Allen Sinai of Decision Economics, Inc. analyzed the benefits that would occur based on an estimated $545 billion of repatriations, similar to the 2004 American Jobs Creation Act (AJCA). Sinai concludes that the U.S. economy would see a substantial boost in investment in plants and equipment and R&D, leading to higher U.S. GDP and job generation. He also projects nearly $140 billion in tax revenue over five years for the U.S. Treasury - money it would not otherwise receive.

"Unlike many of the stimulus proposals that bear a high price tag, this is a virtual free lunch that congress, the new administration and taxpayers can easily digest," said ACCF President and CEO Mark Bloomfield. "This temporary tax reduction can provide a lift to the U.S. business sector, significantly improve the financial position of nonfinancial corporations, and help relieve the tight credit and liquidity restraint for a number of companies."

Sinai's quantitative study concludes that temporarily reinstating an 85% dividends-received-deduction for repatriated foreign subsidiary earnings would lead to the following economic benefits:

-- Increased U.S. GDP, peaking at an additional $110 billion in 2010
-- Reduction in outstanding debt, which would improve credit availability
-- An average annual increase of $56 billion in new investment over the
next 5 years
-- Increased U.S. R&D spending by approximately $7 billion per year over
the next five years
-- Job generation within the U.S. economy peaking at 614,000 in 2011
-- Nearly $140 billion in tax revenue over five years from initial cash
investment and residual economic activity

ACCF also pointed to a survey of U.S. companies that utilized the 2004 AJCA and found, on average, that 25% of the funds repatriated were used for U.S. capital investment, 23% for hiring and training of U.S. employees, 15% for U.S.-based R&D, and 13% for U.S. debt reduction. Another survey indicated repatriating companies increased their total investments in the United States by over $230 billion compared to prior years.

"This temporary tax reduction would provide much needed cash flow for capital spending, R&D, strengthening corporate balance sheets, new jobs and produce gains for the overall economy," said ACCF Senior Vice President and Chief Economist Margo Thorning. "This is a true win-win alternative to placing further strains on the federal budget and Federal Reserve."

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