Friday, January 6, 2012

Lobbying Had a 22,000% Return for Corporations, One Study Found

Is lobbying Congress a good investment?  


This is normally a nearly impossible question to answer, but a unique set of circumstances allowed researchers to conclude that Corporate lobbying for a tax amnesty provision in the 2004 American Jobs Creation Act(AJCA) yielded a 22,000% return.  Yea, I would say it was worth it.  


One reason is that the financial information needed to answer the question can almost always be found only on Corporate tax returns, which are confidential.  Only the IRS can see them.  But a unique opportunity to discover an answer to this question presented itself through a tax amnesty provision in the AJCA and the University of Kansas School of Business ceased the opportunity.  Researchers found that they were able, in this unique situation, to publicly obtain all the information need to analyze the return on lobbying expenditures. As stated in this study, "This is the first study to provide actual values of the financial savings arising from tax law changes, and the first to use data that has been audited by independent accounting firms."



The study identified 496 firms that participated in the tax amnesty program and repatriation of foreign income.  They analyzed $298 billion of repatriations and the 93 firms that engaged in lobbying.  These 93 firms repatriated $208 billion (or 70% of the total). The lobbying group spent $282.7 million on lobbying expenditures and received $62.5 billion in tax savings, which represents a 220:1 return on investment. The study also summarizes the sausage making process as the AJCA bill made its way through Congress.  



Cudos to the authors, Alexander, Mazza and Scholtz, and to the University of Kansas School of Business for this important piece of research.

Measuring Rates of Return for Lobbying Expenditures: An Empirical Analysis under the American Jobs Creation Act



Raquel Meyer Alexander 


University of Kansas - School of Business

Stephen W. Mazza 


University of Kansas - School of Law

Susan Scholz 


University of Kansas - Accounting and Information Systems Area

April 8, 2009

Abstract:      
The lobbying industry has experienced exponential growth within the past decade. The general public, the media, and special interest groups perceive lobbying to be a powerful mechanism affecting public policy. However, academic research finds inconclusive results when quantifying the rate of return on political lobbying expenditures. In this paper we use audited corporate tax disclosures relating to a tax holiday on repatriated earnings created by the American Jobs Creation Act of 2004 to examine the return on lobbying. We find firms lobbying for this provision have a return in excess of $220 for every $1 spent on lobbying, or 22,000%. Repatriating firms are more profitable overall, but surprisingly, profitability is not a predictor of repatriation amount. Rather, industry and firm size are most predictive of repatriation. Cash on hand, a proxy for ability to repatriate, is not associated with the repatriation decision or the repatriation amount. This paper provides compelling evidence that lobbying expenditures have a positive and significant return on investment.
Number of Pages in PDF File: 36
Keywords: Multinational Firms, Corporate Taxation, Repatriation, Lobbying
JEL Classifications: F23, H20, H25, K34
Working Paper Series


GO TO THE WEBSITE AND DOWNLOAD THE FULL REPORT HERE http://bit.ly/Abj1Or


From the report:



"Dividing the estimated tax savings by the estimated amount spent on lobbying gives an estimate of each companies’ return on their lobbying investment. This measure gives an overall return of 220 times the investment. ((46,157.5 + 15,897.0)/282.7). That is, for every dollar spent on lobbying, there was a tax savings equal to about $220. In percentage terms, this is a 22,000% return."


[Top 20] Companies Repatriating $500M or More
(105 companies total1)
Amount
Amount Repatriated/
Rank
Company
Repatriated
Total Assets2
Revenue2
1
PFIZER
37,000
30%
70%
2
MERCK & CO
15,900
37%
68%
3
HEWLETT PACKARD
14,500
19%
18%
4
JOHNSON & JOHNSON
10,800
20%
23%
5
IBM
9,500
9%
10%
6
SCHERING-PLOUGH
9,400
59%
114%
7
DU PONT
9,100
26%
33%
8
BRISTOL-MYERS SQUIBB
9,000
30%
46%
9
ELI LILLY & CO
8,000
32%
58%
10
PEPSICO
7,500
27%
26%
11
PROCTOR & GAMBLE
7,200
13%
14%
12
INTEL
6,200
13%
18%
13
COCA-COLA
6,100
19%
28%
14
ALTRIA GROUP
6,000
6%
9%
15
MOTOROLA
4,600
15%
15%
16
DELL
4,100
18%
8%
17
MORGAN STANLEY
4,000
1%
10%
18
CITIGROUP
3,200
0%
3%
19
ORACLE
3,100
15%
26%
19
WYETH
3,100
9%
18%



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