Monday, October 17, 2005
Interesting editorial in today's Wall Street Journal, Homecoming Victory:
If you want a real life example of how tax cuts boost the economy, take a look at the Homeland Investment Act of 2004. This law allowed U.S. corporations to repatriate earnings from foreign operations back to these shores for one year at a reduced tax rate of 5.25%. Supporters argued that this tax cut would lead to an "in-sourcing" of jobs by luring corporate income parked in foreign vaults back to America. Those repatriated dollars could then be put to work for R&D spending, plant expansions, capital and technology purchases, or merely to improve balance sheets to the benefit of American shareholders. We also predicted the measure would increase tax receipts because a 5.25% tax on several hundred billion dollars raises more money than a 35% corporate tax rate on nothing. Our only concern was whether the Treasury implementing rules were too restrictive.
Well, here's what has happened: In nine months the law has increased the flow of repatriated foreign capital by a whopping $225 billion. J.P. Morgan estimates that another $75 billion will return to America in the fourth quarter. About half of these returning funds were profits from pharmaceutical companies and much of the rest from such high-tech firms as Dell, IBM and Intel. We can't resist noting that this $300 billion of repatriated capital is nearly double the estimate by Congress's hapless Joint Tax Committee, which had assured us this time last year that not a dime more than $165 billion would arrive. To quote Britney Spears: Oops, they did it again.