By some estimates, about $2 trillion in profits from the overseas operations of American companies is parked in foreign bank accounts — money that could be tapped to kick-start the economy if a Washington lobbying coalition has its way.
Three Minnesota companies alone — Medtronic, 3M and General Mills — have $15.2 billion in profits sitting offshore, according to documents filed with the Securities and Exchange Commission. Additionally, nine other Minnesota-based companies hold more than $7 billion in profits overseas.
By keeping the money overseas, the companies can avoid paying the 35 percent U.S. corporate tax rate on it.
"It makes no business sense to bring it back at that rate," said Doug Thornell, a spokesman for the Win America campaign, a lobbying coalition of dozens of companies and associations that advocates a federal tax holiday to encourage companies to bring offshore cash back to the United States.
If the coalition's campaign is successful, instead of a 35 percent tax rate, multinational companies would get temporary single digit tax rates on their foreign profits.
"This will boost the economy. It will probably ultimately result in close to a trillion dollars coming back to America," Thornell said. "This is money that would probably not be coming back otherwise."
Many politicians see those overseas profits as an attractive way to boost the economy without spending federal dollars. One recent study by the Washington-based New America Foundation estimates a tax holiday could create between 1.3 and 2.5 million jobs.
Politicians from both parties have sponsored tax holiday bills in the House and Senate. No member of Minnesota's delegation has co-sponsored either bill, but GOP presidential candidate Rep. Michele Bachmann has made the idea a major part of her economic platform. Republican Congressman Erik Paulsen is also open to the idea.
"I expect repatriation could be an issue, a topic at the end of the year that gets bipartisan support," Paulsen said. "If it is, I would have to look at the details but I would support the concept."
As momentum builds in Congress, an unusual alliance of liberal and conservative economists is coming out against these bills. Referring back to a nearly identical tax holiday enacted under the Bush Administration in 2004, they argue the proposals currently under discussion won't boost the economy or spur investment.
"We have a very good idea of how it will turn out because the exact same policy has been tried before and it was failure," said Chuck Marr, a fellow at the liberal-leaning Center for Budget and Policy Priorities. "It was really beyond a failure, it was an embarrassing failure."
According to a study by the Institute for Policy Studies, Medtronic and 3M brought home more than $2.7 billion worth of overseas profits at a very low tax rate under the 2004 repatriation holiday. IBM, another significant employer in Minnesota, brought back $9.5 billion.
J.D. Foster, a former official in the Bush Treasury Department and White House in 2004 agrees with Marr that the tax holiday failed to boost the economy.
"You get a pretty uniform discomfort with this kind of tax cut — nothing against tax cuts per se, or certainly not for these businesses, but it's the economic argument about jobs that gives us some heartburn," said Foster, who's now a fellow at the conservative Heritage Foundation.
As Foster and other critics point out, American companies already sit on very large reserves of cash in the United States. Companies aren't spending that money because of weak and uncertain economic conditions and Foster is doubtful that an influx of repatriated profits would lead to further investments.
Numerous academic studies of the 2004 tax holiday show little evidence that companies used the money that they brought back to the US to hire people and invest. Instead, most of the studies agree that companies generally gave the money to their shareholders in the form of dividends.
A recent Senate report shows that many of the companies that got the biggest tax breaks in 2004 actually laid off workers rather than hiring and making new investments.
Critics argue that a second repatriation holiday could actually harm the economy in the long term.
"There's a pattern and what it says to companies is, 'OK, you should invest more and more overseas, wait for another recession and get another holiday,' " said Marr. "So really, the incentive effect actually is to invest outside of the United States rather than investing in Minnesota."
No Minnesota company would speak on the record about these proposals although Cargill did provide MPR News with the following short statement:
"Cargill prefers the repatriation issue be addressed as part of comprehensive tax reform. From our point of view, the U.S. taxation of foreign-earned income should ensure U.S. companies can compete with non-U.S. firms. A tax holiday sidesteps the need for comprehensive reform and could make it more difficult to achieve. "
As a privately-held firm, Cargill does not have to disclose the extent of its offshore profits, although the company is large with considerable global reach.
While generally supportive of a tax holiday, Paulsen echoed Cargill's argument in an interview with MPR News.
"Right now our tax code penalizes those companies from reinvesting back home and that's why we talk about holidays and we should have a tax system that prevents the need for a holiday in the first place," Paulsen said.
No Minnesota-based companies are listed as members of the Win America Coalition. Some of the coalition's blue chip members include Apple, Google and Duke Energy. But 3M, General Mills and Medtronic have ties to the U.S. Chamber of Commerce, which is part of a coalition that supports a repatriation holiday.
The sustained lobbying campaign directed at members of Congress is highly effective, said the Heritage Foundation's J.D. Foster.
"You know, you're sitting there, you're a member of Congress or a staffer and some company comes in and says, 'Well, we've got all these profits locked up overseas, if we just bring them home we'll use them,' " Foster said. "Sounds like an entirely plausible argument and unless you dig deeper, you're going to say, 'Yeah that makes sense and sign onto the bill.' "
One lobbyist with ties to Minnesota companies told MPR News that he hopes that the proposed tax holiday could be attached to the recommendations of the deficit cutting "super committee" tasked with finding at least $1.2 trillion in cuts by Thanksgiving.