The Homeland Investment Act confronted the issue in 2004 and provided a fix – an effective tax rate of just 5.25 percent would be levied on repatriated cash. According to the Internal Revenue Service, 843 companies took advantage and repatriated $362 billion.
The legislation was passed in a stronger economy than today and advocates of another “tax holiday” believe the sluggish recovery is even more deserving.
“A trillion dollars is hard to turn your back on,” said Dean Garfield, president of the Information Technology Industry Council. “If we can come up with a solution that allows companies to bring it back at a non-punitive rate they would likely bring it back.”
The technology companies that Mr Garfield represents have the most to gain from a repeat of the 2004 legislation. But large manufacturers such as General Electric are also calling for a change of the tax code.
“Bringing the cash back to the US has two advantages,” says Keith Sherin, chief financial officer at GE. “It would bring some additional revenues to the US Treasury because there would be some tax paid on it which is not being paid today. Companies then could decide what to do with that cash.”
GE is CNBC's parent company.
The last time a tax holiday came to a vote was in the stimulus bill when Barbara Boxer, a Democratic senator from California, and John Ensign, a Republican from Nevada, proposed it.
It is not clear that a similar initiative now would attract the same bipartisan support as the Boxer-Ensign proposal, which was narrowly defeated in the Senate. The administration is currently opposed but the US Chamber of Commerce is sounding out conservative “Blue Dog” Democrats about the prospects for legislation after the November elections.
Caroline Harris, chief tax counsel at the chamber said: “If we’re talking about short-term growth we’re not looking at fundamental tax reform, we’re looking at something like this.”
Ms Harris says antipathy to the idea from the administration – the Treasury declined to comment – is “awe inspiring” but the Treasury of George W. Bush also had concerns about the efficacy of the idea.
Critics say one flaw is that the tax break affects the timing of repatriation rather than the total sum. Business groups respond that multinational groups often choose foreign acquisitions to avoid the tax and so foreign-earned profits are inevitably lost to the US.
Abbott Laboratories last year said it would pay 4.5 billion euros ($6.6 billion) to buy the drug unit of Brussels-based Solvay, largely using its overseas cash.
Another complaint about the 2004 tax holiday was that a chunk of the cash returned to the US was used to make dividend payments to shareholders rather than investment in capital and labor.
But Mr Sherin dismisses this complaint. “So what if they raised their dividend or bought back stock or bought other companies? At the end of the day that is an infusion of cash into investment funds or individual’s pockets or ... other parts of the economy. I don’t see that as a negative. The Treasury gets a tax benefit and that cash will be used for something.”