Corporate Welfare Runs Amok

Earlier this month, Johnson & Johnson became one of the first major American corporations to sign on for a one-year "tax holiday" - a government-sponsored opportunity for American multinationals to bring their foreign profits back to the United States at a puny tax rate of 5.25 percent, compared with the normal corporate rate of 35 percent. Johnson & Johnson intends to repatriate $11 billion. And that is just the beginning of what is shaping up to be an unprecedented government giveaway.
The drug giant Schering-Plough has announced a coming $9.4 billion repatriation, and Eli Lilly has announced one for $8 billion. Many other cash-rich companies, especially in pharmaceuticals and technology, are expected to follow suit. Pfizer is considering whether to repatriate $29 billion in untaxed foreign profits; Hewlett-Packard has $14.5 billion eligible for repatriation; Intel has $6 billion. By the end of 2005, an estimated $100 billion to $500 billion will have found its way home. Over the long run, Congress's Joint Committee on Taxation projects that the holiday will allow companies to avoid $3.3 billion in taxes, an estimate that many tax experts think is low.
The nation's corporate tax rules - combined with spotty enforcement by an underfunded and outmuscled Internal Revenue Service - provide strong incentives for American companies to shift their profits from the United States to low-tax havens, such as Ireland and Luxembourg. Once there, the profits are allowed to grow untaxed by the United States until they are repatriated. That tax deferral is a hugely munificent gesture - as if the country's biggest businesses had been granted their own special IRAs.
But it wasn't enough for many companies that have piled up excess cash abroad. The Homeland Investment Coalition, a roster of dozens of America's largest corporations, lobbied vigorously - and successfully - for a tax holiday before deigning to repatriate their overseas profits. Cont.