U.S. Rep. Paul Ryan (R-Wis.), the fiscally conservative head of the House Budget Committee and one of the nation’s most influential Republican leaders, on Wednesday publicly endorsed repatriating corporate earnings from outside the U.S., even though such action would mean corporations paying more taxes.
Ryan's endorsement of the idea follows a similar suggestion earlier this week by the Tim Cook, CEO of Apple Inc. (Nasdaq:AAPL) as he testified before a Senate subcommittee. However, both men made their call for repatriation conditional on cutting the tax on repatriated profits.
Cook, who was testifying before a Senate subcommittee, said Apple is holding about $105 billion of its $145 billion cash hoard outside the U.S. Roughly a third of the money Apple is keeping offshore is being held in Irish subsidiaries that pay no tax.
“I agree with Tim Cook,” Ryan said Wednesday on CNBC. “Repatriation ought to be a daily event at a company's choosing, not a one-off holiday.”
However, both Cook and Ryan said repatriation ought to be a response to a reformed tax code that reduces the 35 percent tax rate U.S. corporations must pay on repatriated profits from foreign subsidiaries. That rate is the highest such rate levied on corporations by any economically developed nation.
“I helped write the last one-off holiday when we had a 5.2 percent rate to bring it back at one time. We had this bizarre worldwide tax system that nobody else has in the industrialized world. We put it at a huge competitive disadvantage.”
Cook told senators that Apple is holding offshore about $105 billion in earnings and that lawmakers should set the tax rate in single digits.
The issue of repatriating profits earned abroad by U.S. corporations is significant: There is an estimated $1.7 trillion in such monies being held outside the nation because of the 35 percent tax rate on offshore earnings. Profit earned inside the country is taxed in the mid-20 percent range, said Cook.
Cook’s call for reform of the tax on foreign earnings follows that of Larry Ellison, CEO of Oracle Corporation (Nasdaq:ORCL), who has said the tax on foreign earnings out to be slashed sharply or eliminated altogether.
The tax code not only keeps money offshore but also influences the merger and acquisition activity of large U.S.. corporations. The U.S. repatriation tax is widely believed to have helped drive the decision of the decision by Hewlett-Packard Company (NYSE:HPQ) to pay $11.1 billion for British software maker Autonomy and the decision by Microsoft Corporation (Nasdaq:MSFT) to pay $8.5 billion for Skype, which is based in Luxembourg.