How These Companies Earned a 22,000% Return

Investors scout for a company that returns high percentages from the money it spends. Usually, this might mean that a company opens a factory that earns a respectable return of 20% -- or for every $1.00 spent, the company earns $1.20. More unconventionally, this might mean that a company buys a suite at an NBA game to host a politician's fundraiser. This second potential investment is one example of lobbying, and it could reward the company with a lottery-like 22,000% return.

The numbers
According to a University of Kansas report recently profiled on NPR's Planet Money, companies spent $282 million lobbying for the passage of the American Jobs Creation Act of 2004, which it concludes saved the companies a combined $88.6 billion in taxes. This bill allowed a one-time tax break on repatriated profits, which represented money that corporations held in overseas subsidiaries before transferring it back to U.S.-based business entities. Instead of the typical 35% corporate tax rate, companies only had to pay 5.25% on repatriated profits. The largest winners of the 2004 bill, according to the report:

Source: "Measuring Rates of Return for Lobbying Expenditures: An Empirical Analysis Under the American Jobs Creation Act," Alexander, Mazza, Scholz, 2009.

This bill gave a unique opportunity to measure the return of lobbying, as the costs and benefits were clearly defined in dollars instead of the more intangible potential costs of regulations like SOPA.

Of course, not all lobbying returns 22,000% -- especially if the company supports the losing side of potential legislation. But sometimes, returns on lobbying can be much higher than 22,000%. For instance, former lobbyist Jack Abramoff says Tyco spent roughly $4 million to save more than $4 billion by avoiding a retroactive tax -- equaling a return of 100,000%.

The meaning
Even though the intention of the repatriation tax holiday was to boost domestic investments and create jobs, companies used the extra cash elsewhere. Studies on the bill's effects claim that for each repatriated dollar, share repurchasing increased $0.91.

Now, corporations are clamoring for another tax holiday to repatriate what they claim is over $1 trillion in overseas income. A group called Win America, comprising companies including Duke Energy (NYSE: DUK) and Qualcomm (Nasdaq: QCOM), is no doubt trying to realize another large return on lobbying dollars. Recently, though, support for such a holiday has faded, as Republicans failed to include a repatriation tax break in the newly passed payroll tax bill.

However, the recent payroll tax bill needs to be revisited in two months, giving corporations more time to plead their case to Congress. If such a repatriation tax break is included, look for multinationals with overseas holdings to repeat history and increase share buybacks or potentially distribute extra cash as dividends.

If you're looking for other ways to benefit from cozy corporate and congressional relationships, check out our free report: "Two Small to Fail: Two Small Caps the Government Won't Let Go Broke". In it you'll find two companies with government contracts that will outlast whoever wins in 2012, and it's completely free!