$1 trillion stashed abroad

Give us the money, or we shoot the dog! American corporations once again try to strike a bargain to avoid paying their taxes. Congress shouldn’t be cutting services to the rest of us while even one penny goes uncollected from these corporate bums:

Google (GOOG) Ireland is not a branch office of the U.S.-based search giant. It’s a separate corporation, and the IRS can’t touch a dime that Google Ireland earns from its core business until it sends profits back home to the mother ship. The term of art for bringing the money back is repatriation—the same as for a soldier captured abroad.

U.S. multinationals have more than $1 trillion in profits stashed in overseas subsidiaries. Some of the companies with the most money squirreled away say they’re prepared to bring a big chunk of it home. All they want in return is a temporary tax break that wouldn’t cost the U.S. Treasury anything, since it’s money that would otherwise be kept abroad and not taxed at all. The tax break would actually raise billions of dollars from applying the reduced tax rate to the money that’s been repatriated.

What’s not to like? John T. Chambers, Cisco’s (CSCO) chief executive officer, told securities analysts in February that “you’re now seeing political leaders at all levels understand” the case for a tax holiday on repatriated foreign profits. “I think this one has well over a 60 percent probability of being resolved in a positive way,” he said. Although a lobbying campaign is just getting under way, Representative Brian P. Bilbray (R-Calif.) has already introduced a bill that would let companies bring home money tax-free if they used it for research and development or facilities expansion.

Aside from Cisco, the growing coalition for repatriation relief includes Adobe (ADBE), Apple, CA Technologies (CA), Duke Energy (DUK), Google, Microsoft (MSFT), Oracle (ORCL), Pfizer (PFE), and Qualcomm (QCOM)—powerhouses all. The group is seeking fundamental changes in tax law, but if it can’t get them right away, it still wants the tax holiday. Its opening position is that there should be no conditions on how the money is used. Chambers argued in a Wall Street Journal op-ed last October that a repatriation might create as many as 2 million jobs.

It’s a seductive argument—reap billions in tax revenue from money that’s currently untaxed and generate economic growth to boot. On closer inspection, though, the coalition’s argument has some logical loopholes. A nearly identical holiday passed by Congress in 2004 and taken mostly in 2005 did little to boost jobs or investment, according to several independent economic studies. Some economists say a holiday today might be even less effective because cash isn’t a constraint in 2011—it’s bountiful, thanks to the Federal Reserve’s loose-money policy. U.S. nonfinancial corporations have $1.9 trillion in liquid assets, the Fed says. No more than half of that—probably significantly less—is offshore. (An unknown portion of the $1 trillion-plus in foreign-held profits isn’t cash. It’s tied up in foreign factories, offices, and the like and can’t easily be repatriated.)

“The problem is lack of demand or lack of investment opportunities” in the U.S., says Dhammika Dharmapala, an economist and law professor at the University of Illinois. Plus, granting another holiday so soon might induce companies to stash even more money abroad, convinced that if they wait long enough another holiday will arrive, says Thomas J. Brennan, a professor at Northwestern University School of Law.