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Case for Repatriation Holiday Falls Apart Under Scrutiny

The idea of giving corporations another “repatriation” tax holiday to encourage them to bring their overseas profits back to the United States might sound nice at first, but the case for it falls apart under close scrutiny.

Corporations are conducting a massive lobbying campaign for the holiday, making the following pitch:

Vast amounts of money are overseas.  Americans need jobs.  Let’s bring that money home and invest it for the good of the country and we will all be better off.

Others are now adding that the tax holiday could provide money to rebuild bridges that are falling apart and other important parts of our national infrastructure

It all sounds great from 30,000 feet, but not when you examine it from ground level, as we did recently and Jared Bernstein did this morning:

  • We tried a repatriation holiday back in 2004 and it was a complete failure.  Even though Congress included requirements in the law designed to ensure that companies invested the repatriated money here at home to create jobs, independent analysis found that companies used virtually all of it for things like repurchasing their own stock and paying bigger dividends to their shareholders.  The promised jobs never materialized.
  • A point that proponents of a second holiday keep missing is that a second repatriation holiday would be an even bigger failure than the first because it would provide a powerful incentive for companies to shift even more investments overseas.  If Congress enacts a second tax holiday, rational corporate executives will conclude that more tax holidays are likely in the future.  That will make corporations more inclined to shift income into foreign tax havens and less likely to invest in the United States.  That’s why Congress, in enacting the 2004 tax holiday, explicitly warned that it should be a one-time event.
  • In part because it would encourage more overseas investment, a repatriation holiday would cost taxpayers $80 billion over ten years, according to the Joint Tax Committee.  This means a holiday wouldn’t raise a penny to pay for infrastructure — or any other priority.  As former Joint Tax Committee chief of staff Edward Kleinbard recently said, “You’re starting $80 billion in the hole with repatriation . . . so there’s no net money to go into an infrastructure bank or anywhere else.”  Instead, a holiday would put even more budget pressure on these priorities by adding to budget deficits.
Chuck Marr
Vicepresidente de Política Tributaria Federal