May 7, 2005
Remember the American Jobs Creation Act, which was signed into law last October? No, nor me, but I’m guessing it was supposed to create more U.S. jobs. How’s that going?
Part of the bill gave companies a one-year window to repatriate foreign profits at a 5.25% tax rate, compared with the usual 35%. The tens of billions of dollars flowing back to the U.S. would then fund an expansionary boom and create thousands of new jobs.
The first part of this plan is working well, particularly for pharmaceutical companies, which the New York Times estimates will repatriate up to $75 billion in overseas profits this year:
Already, four of the six drug makers have collectively announced plans to return $56 billion in profits to the United States. Two others say they are still considering but could repatriate an additional $18 billion. Had the six companies faced standard federal taxes on those profits, they would have paid $26 billion to the United States. Instead, they will pay less than $4 billion. Chris Senyek, an accounting analyst at Bear Stearns, said drug companies would probably make up about half of all the money repatriated by publicly traded companies.
That’s gonna create a lot of jobs, right?
Although the act is intended to create jobs, Pfizer said last month that it would cut its annual costs by $4 billion over the next three years. Pfizer, which will repatriate at least $28 billion under the act, did not say how many jobs it planned to eliminate, but analysts expect the company to shrink its work force by thousands of people. Mr. Senyek said the law would create an insignificant number of jobs because companies can easily work around provisions in the law meant to stop them from using the money for dividends to shareholders rather than new hiring.
OK, but all those repatriated profits must be creating jobs somewhere?
Well, Hewlett-Packard, which had accumulated $14 billion in foreign profits and lobbied intensively for the tax break, is cutting thousands of jobs this year (as it has for the past few years). Procter & Gamble, which is repatriating about $11 billion in foreign profits, said in January that it would use the money to help finance its $57 billion takeover of Gillette—a merger that will result in around 6,000 job losses. Kellogg says it will bring back about $1 billion in overseas profits, which it will use for acquisitions (i.e., merge and purge)…
And so on. Why am I not surprised?
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