Repatriation Tax Holiday Would Lose Revenue And Is a Proven Policy Failure

[ksen]

http://www.cbpp.org/cms/?fa=view&id=4154

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. Congress’ Joint Committee on Taxation (JCT) recently estimated that, while a second repatriation holiday (following the one enacted in 2004) would raise revenue for the first two years, it would cost $96 billion over ten years. Thus, rather than use the tax holiday to finance long-term infrastructure projects, the Treasury would have to borrow to pay for the tax holiday and then borrow again to pay for the infrastructure. (For more, see “Repatriation Holiday Costs Money So Can’t Offset Other Costs,” below.)

The 2004 tax holiday did not produce the promised economic benefits, and a second one likely wouldn’t either. Firms largely used the profits that they repatriated during the 2004 holiday not to invest or create U.S. jobs but for the very purposes that Congress sought to prohibit, such as repurchasing their own stock and paying bigger dividends to shareholders. Moreover, many firms laid off large numbers of U.S. workers even as they reaped multi-billion-dollar benefits from the tax holiday and passed them on to shareholders. The top 15 repatriating corporations repatriated more than $150 billion during the holiday while cuttingtheir U.S. workforces by 21,000 between 2004 and 2007, a Senate Permanent Subcommittee on Investigations report found.[2] (For more, see “2004 Tax Holiday Failed to Generate Promised Economic Benefits,” below.)

A second tax holiday would increase incentives to shift income overseas. If the President and Congress enact a second tax holiday, corporate executives will likely conclude that more such tax holidays will come down the road, making these executives more inclined to shift income into tax havens (and hence 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-only event. (For more, see “Second Repatriation Holiday Would Be Even Costlier Mistake,” below.)

A tax holiday would not likely boost domestic investment by freeing multinationals from cash restraints. Proponents of a new tax holiday argue that large multinationals are cash-constrained and would make significant, job-creating investments in the United States if they had access to their overseas earnings. The large stock repurchases that some multinationals made in recent years, however, (1) show that they already have easy access to large amounts of domestic cash and (2) suggest that multinationals would likely use additional cash from repatriation for more stock buy-backs, rather than new investments. Indeed, the ten companies with the largest stockpiles of foreign profits paid out more than $107 billion in cash to shareholders through share repurchases in 2013, suggesting that they are not cash-constrained. Moreover, seven of the ten companies with the largest stockpiles of foreign earnings in 2013 also ranked among the top ten U.S. companies by share repurchases. (For more, see “Evidence Contradicts Claim That Multinationals Are Cash-Constrained,” below.)

Some of the biggest beneficiaries of a tax holiday would be firms that aggressively shifted income overseas. Technology and pharmaceutical companies have been particularly aggressive in shifting income abroad because they rely on intellectual property, which is relatively easy to shift to other countries to avoid taxes. Half of all repatriations from the 2004 tax holiday came from companies in these two industries. Large multinationals in the same industries would benefit disproportionately — and enormously — from a second tax holiday. (For more, see “Biggest Winners Would Include Firms That Have Aggressively Shifted Income Overseas,” below.)

Policymakers can raise revenues by taxing offshore profits — and even dedicate the revenue to finance infrastructure projects — without enacting another repatriation holiday. President Obama and House Ways and Means Chairman Dave Camp both proposed to tax offshore earnings (and dedicate the resulting revenue to infrastructure investment). Their proposals, however, are measures to help transition the U.S. tax code to a reformed international tax system — not repatriation tax holidays. Chairman Camp would subject offshore tax-deferred profits to a compulsory tax as part of transitioning to a new international tax system, generating an estimated $170 billion of revenue over ten years that Camp would dedicate to the Highway Trust Fund.

And since this is such a bad idea I fully expect it to pass with bipartisan support.

Idiots.

 

[coloradoatheist]

I'll actually agree with you on this. To really get the benefits, it would have to be permanent.

 

[ksen]

Sure, because lowering taxes on capital even more would really help the economy out.