While there’s no doubt that the cards remain stacked against the dollar, a helping hand could emerge this year from an unlikely source: US multinationals.

The Homeland Investment Act, included in a $34 billion tax cut package approved by a US House tax committee last week, would reduce for one year the corporate tax rate on worldwide earnings for US companies to 5.25% from 35%, provided the income is invested in the US. In the process, some analysts argue, it could bring more than $400 billion back to US shores at a time when foreign direct investment inflows have been dwindling and the US trade deficit is at record levels.

Supporters of the provision, part of the tax bill known as the “American Jobs Creation Act,” contend it would erase the disincentive for firms to repatriate foreign earnings while also raising US tax revenues.

The bill is set to go to the House floor, where it is expected to pass. The Senate passed a similar bill last month. A joint House-Senate committee would then need to cobble together a final draft over the summer, with passage possible by September.

Normally, legislation so far from its final version would rate little interest among investors, especially in an election year that has both parties scraping to promote the most effective job-creation programs. But in this case, recent history is adding extra urgency. The bill was initially designed to settle a dispute with the European Union over a US export tax break for manufacturers that the World Trade Organization ruled an illegal subsidy.

To combat the measure, the EU passed a five percent tariff against a variety of US goods that escalates at one percent per month until the tax break is repealed. It has since climbed to seven percent.

“The EU tariff is the kicker. Normally, this (bill) would have been buried. No Democrat wants to give the president a nice photo op in front of a banner reading `jobs bill’,” said Andrew Busch, a global foreign exchange strategist at BMO Nesbitt Burns in Chicago. “But Congress is being told to get up and do something fast, and Democrats have a vested interest in helping out their constituents.”

Could hit European currencies

Investors have seized in particular on the bill’s repatriation provision. If it eventually winds its way through Congress, major financial institutions are predicting the result could be anywhere from $150 billion to more than $400 billion in corporate funds flowing into the U.S. by the end of the year.

If those flows materialize, they would prove a boon for the dollar, with many traders expecting speculators to buy dollars as the legislation gets closer to passage. “A conservative estimate would be $400 billion” in cross-border flows, said Neal Kimberly, head of foreign exchange sales at Bank of Tokyo Mitsubishi in London.

“That’s dollar-positive, especially against (European currencies) and less so against Asia,” he said, noting that Asian currencies wouldn’t be hit as hard because much of the increased US demand resulting from the tax breaks would be channeled toward Asian exports.

Analysts at J.P. Morgan Chase estimated in a report that $425 billion of about $650 billion in retained earnings overseas will come back to the US by the end of the year.

For the economy, that would mean a roughly four percent increase in capital spending over the next two years as a result of this massive repatriation of funds and 600,000 new jobs over the same period, according to the report.

Other estimates are more conservative, especially if the bill lingers in committee beyond September, and question how firms will incorporate the earnings they bring back home.

“People assume the money would be spent on new investment, but corporations are not doing that now” despite raking in huge profits, said Marc Chandler, chief currency strategist at HSBC, which predicts a windfall of $135 billion by December should the bill become law. Whatever does come back, Chandler said, would “go straight for the balance sheets.”

The analysts at JP Morgan