Six Reasons Why a Tax Holiday for Multinationals Is a Bad Idea

We highlighted new Joint Committee on Taxation estimates last week that giving multinational corporations another “repatriation tax holiday” to encourage them to bring overseas profits back to the United States would cost $96 billion over the first decade (see graph).  That’s one of six reasons why the tax holiday, which some have proposed to help finance needed infrastructure spending, would be a serious mistake, our new paper explains.  The paper has the details, but in brief those six reasons are:

1. A repatriation tax holiday would lose substantial federal revenue and swell budget deficits, so it couldn’t pay for highways, mass transit, or anything else.
2. The 2004 tax holiday did not produce the promised economic benefits, and a second one likely wouldn’t either.
3. A second tax holiday would increase incentives to shift income overseas.
4. A tax holiday would not likely boost domestic investment by freeing multinationals from cash restraints.
5. Some of the biggest beneficiaries of a tax holiday would be firms that aggressively shifted income overseas.
6. Policymakers can raise revenues by taxing offshore profits — and even dedicate the revenue to finance infrastructure projects — without enacting another repatriation holiday.

Click here for the full report.