A broken tax break?

According to a report, a ballyhooed tax holiday designed to boost hiring in the U.S. may well help fat cats and hurt workers.

Tech Culture

A corporate tax holiday touted as a job-creator in the offshore era may well lead to U.S. layoffs and fatter wallets for wealthier types, according to a report from the Associated Press.

Signed into law last October, the measure temporarily lowers taxes on foreign profits brought back to the United States. Amid the fury over offshore outsourcing, Sen. John Ensign, R-Nev., pitched it as a way to help workers. "In discussing the state of the U.S. economy, the topic of 'outsourcing' almost always comes up, and the Invest in the U.S.A. Act represents a form of 'insourcing' in which jobs and capital are returned to America," Ensign said at the time.

Profits brought back home under the program are not supposed to be used to pay chief executive salaries. But AP's story indicates a company theoretically could use the funds to cover regular advertising costs, and switch that budget over to executive compensation or dividend payments.

In addition, acquisitions are an acceptable use of the foreign earnings, according to the AP and The New York Times. As we know, mergers often trigger big waves of pink slips.

According to The New York Times, computer giant Hewlett-Packard lobbied for the tax break but said it would keep cutting its workforce this year.

And the AP said a Morgan Stanley survey found that none of the investment firm's analysts believed that any of the companies they followed would use the repatriated earnings for hiring.

At the same time, it appears those hoping to hold companies accountable for the tax break will find themselves frustrated. "Good luck to those investors who want to figure out what money is being spent where," the AP's Rachel Beck reported. "Companies don't have to segregate repatriated funds from other cash."

One lesson to draw from this seeming fiasco: advocates behind efforts to generate U.S. jobs should pay close attention to the details. Otherwise, resulting laws are likely to be full of loopholes that hurt, rather than help, average Americans.

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