Research conducted by a Drexel LeBow economics professor has been cited in a report released last week by the U.S. Senate on the effects of the 2004 America Jobs Creation Act. The Act was intended to encourage corporations to return cash assets to the U.S., doing so at a tax rate of 5.25 percent instead of the top corporate income tax rate of 35 percent.
A study by Sebastien Bradley, PhD., an assistant professor of economics at LeBow College, found “an unforeseen consequence of this tax holiday.” Some U.S. parent corporations, he found, reallocated as much as $32 billion in domestic funds to their offshore affiliates, only to return those funds to the U.S. under the much lower tax rate. Bradley titled his paper “Round-tripping of Domestic Profits under the American Jobs Creation Act of 2004.”
If Bradley’s estimate is correct, the $32 billion sent on a round-trip to take advantage of the tax holiday represents about 10 percent of the $312 billion in corporate profits repatriated under the legislation.
Proponents of the legislation said the tax holiday would promote investment and increase employment in the U.S. The Senate report, issued by Sen. Carl Levin (D-Mich.), concludes the growth in American jobs and investment did not occur.