Proposed Tax Break For Multinationals Would Be Poor Stimulus
“Dividend Repatriation Tax Holiday” Failed in 2004, Unlikely to Work Now
End Notes
[1] For a discussion of the study, funded by the American Council for Capital Formation, see the box on page 6.
[2] George Schink and Laura Tyson, “A Temporary Reduction in Taxes on Repatriated Profits for the Purpose of Economic Stimulus and Investment in National Priorities,” LECG, January 30, 2009.
[3] Alec Phillips, “Goldman Sachs Global ECS US Research; US Daily Status Check on the 2009 Policy Outlook,” January 13, 2009.
[4] Joint Committee on Taxation estimate cited in Peter Cohn, "Neal, Some Senators Warily Eyeing Repatriation Provision," CongressDailyAM, February 3, 2009; also see Lee A. Sheppard and Martin A. Sullivan, “Repatriation Aid for the Financial Crisis?” Tax Notes, January 5, 2009. This estimate is not recent, and if enacted as part of a stimulus package in 2009 the proposal may have a significantly higher cost over 10 years.
[5] To qualify for this treatment, the earnings must be derived from “active” business operations in the foreign jurisdiction, among other requirements.
[6] Altshuler, Auerbach, Cooper, and Knittel describe the current system of taxing the foreign earnings of U.S. corporations as follows: “Under current U.S. tax law, both the domestic and foreign earnings of U.S. corporations are subject to U.S. taxation. If foreign operations are organized as subsidiaries (i.e., they are separately incorporated in the foreign country), then active business profits are not generally taxed until they are remitted to the U.S. parent corporation. To alleviate the double taxation of foreign source income, firms are allowed to claim credits for income taxes paid to foreign governments against U.S. tax liability on foreign source income. The credit is limited to the U.S. tax liability on the foreign source income. If a firm’s foreign tax payments are less than the limitation, the firm pays a ‘repatriation tax’ equal to the difference between the U.S. and the foreign tax on the income remitted.” See Altshuler et al., “Understanding U.S. Corporate Tax Losses,” NBER Working Paper 14405, http://www.nber.org/papers/w14405.
[7] The holiday is also sometimes referred to as “Section 965.”
[8] Rodney P. Mock and Andreas Simon, “Permanently Reinvested Earnings: Priceless,” Tax Notes, November 17, 2008, p. 843.
[9] Mock and Simon.
[10] Lee A. Sheppard and Martin A. Sullivan, “Repatriation Aid for the Financial Crisis?” Tax Notes, January 5, 2009.
[11] Dhammika Dharmapala, C. Fritz Foley, and Kristin J. Forbes, “The Unintended Consequences of the Homeland Investment Act: Implications for Financial Constraints, Governance, and International Tax Policy,” September 20, 2008, http://www.people.hbs.edu/ffoley/HIA.pdf.
[12] See text below, and also see Sheppard and Sullivan.
[13] Dharmapala, Foley, and Forbes.
[14] Dharmapala, Foley, and Forbes.
[15] Roy Clemons and Michael R. Kinney, “An Analysis of the Tax Holiday for Repatriation Under the Jobs Act,” Tax Analysts Special Report, October 20, 2008.
[16] Lisa M. Nadal, “News Analysis: Repatriation Gluttony — Was it Worth It?” Tax Analysts, 2008.
[17] Roy Clemons and Michael R. Kinney, “An Analysis of the Tax Holiday for Repatriation Under the Jobs Act,” Tax Analysts Special Report, October 20, 2008.
[18] Dharmapala, Foley and Forbes.
[19] Lee A. Sheppard and Martin A. Sullivan, “Repatriation Aid for the Financial Crisis?” Tax Notes, January 5, 2009.
[20] Sheppard and Sullivan.
[21] Lisa M. Nadal, “News Analysis: Repatriation Gluttony — Was it Worth It?” Tax Analysts, 2008.
[22] See for example, Allen Sinai, “Macroeconomic Effects of Reducing the Effective Tax Rate on Repatriated Foreign Subsidiary Earnings in a Credit- and Liquidity-Constrained Environment,” Decision Economics, Study performed by Decision Economics, Inc. (DE) for the American Council on Capital Formation, revised December 7, 2008. Also see the critique of this study by Lee A. Sheppard and Martin A. Sullivan, “Repatriation Aid for the Financial Crisis?” Tax Notes, January 5, 2009.
[23] See for example, R. Bruce Josten, “Letter Urging Congress to Consider Legislation to Stimulate Economic Activity and Spur Job Growth,” Chamber of Commerce, November 7, 2008.
[24] Dharmapala, Foley, and Forbes.
[25] Dharmapala, Foley, and Forbes.
[26] Mock and Simon.
[27] Melissa Redmiles, “The One-Time Received Dividend Deduction,” IRS Statistics of Income Bulletin, Spring 2008.
[28] Jane G. Gravelle, “Tax Cuts and Economic Stimulus: How Effective Are the Alternatives?” Congressional Research Service, December 5, 2008, p. 5.
[29] Sheppard and Sullivan.
[30] Sheppard and Sullivan.
[31] See H.R. Rep. No. 108-55, p. 65, as reported in Sheppard and Sullivan.
[32] Melissa Redmiles, “The One-Time Received Dividend Deduction,” IRS Statistics of Income Bulletin, Spring 2008.
[33] Sheppard and Sullivan.
[34] Sheppard and Sullivan.
[35] See Lisa M. Nadal, “News Analysis: Repatriation Gluttony — Was it Worth It?” Tax Analysts, 2008.
[36] Numerous reforms have been proposed, including limiting the ability of multinationals to claim deductions against foreign earnings, moving toward a “territorial” system of taxation, and imposing U.S. taxes on foreign-earned income when it is earned rather than when it is repatriated.