Corporate Tax Holiday Would Be a Costly Mistake

“The evidence is there,” the New York Times writes in an editorial today. “A corporate tax holiday won’t create more jobs. What it will do is raise the deficit.”

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A well-funded corporate lobbying campaign is pushing Congress to allow multinational corporations to bring profits held overseas back to the United States at a temporary, bargain-basement tax rate.

As I’ve explained several times, most recently in this video conversation with my colleague Jared Bernstein, Congress tried this in 2004 and it proved an embarrassing failure. Firms not only failed to use the “repatriated” funds to boost their U.S. investment and hiring, many of them actually laid off thousands of U.S. workers.

Also, Congress’ Joint Tax Committee has found that while a tax holiday would boost revenues initially, as companies took advantage of the low holiday rate, large revenue losses in later years would more than wipe out those gains as corporations shift more investments, profits, and jobs overseas in anticipation of yet another temporary holiday (see graph).