'Repatriated' Earnings Subject of Tax Reduction Effort

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American companies are making more profit than ever before overseas but bringing less of it home to pay down debt and compensate shareholders, mostly because the 35 percent tax that corporate income faces in the U.S. is a disincentive—one that some companies are lobbying to reduce, the Wall Street Journal reported.

In 2003, companies brought home almost $40 billion in earnings from overseas, which was down from $46.7 billion in 2002 and $6.1 billion in 1999, the Journal reported.

Undistributed foreign earnings, which are reflected in company footnotes, accounted for just over $119 billion last year, according to a survey issued this week by the Commerce Department's Bureau of Economic Analysis.

These earnings, which are called repatriated earnings, are the subject of a multi-company lobbying effort that would ease the burden on companies wishing to pump foreign earnings back into the U.S. economy. Companies don't pay taxes on their foreign profits until they bring them back to the states while most nations only tax profits earned locally or not at all. The U.S. on the other hand, taxes at 35 percent corporate profits earned world-wide.

Taxes are the "dominant factor why companies are reluctant to move these earnings," Dan Kostenbauder, H-P's vice president for transaction taxes, told the Journal. "Companies have a strong reason to resist changing a dollar outside the U.S. into 65 cents when they bring it into the U.S."

H-P and a group of 40 other companies and trade groups back a measure called the Homeland Investment Act that offers a one-time reduction on the tax rate on foreign earnings to 5.25%, the Journal reported.

"Anticipation of the Homeland Investment Act has had very little impact," he says. "Maybe on the margins somebody delayed a dividend, but it's not a big impact on foreign holdings."

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