CBPP: A Repatriation Tax Holiday Is a Lousy Idea

The Center on Budget and  Policy Priorities has released Tax Holiday for Overseas Corporate Profits Would Increase Deficits, Fail to Boost the Economy, and Ultimately Shift More Investment and Jobs Overseas:

Providing large multinational corporations with a large tax cut via a repatriation tax holiday is not likely to generate the promised investments or jobs in the United States. Policymakers should be extremely skeptical of the claim that, despite the evidence that the 2004 tax holiday failed to boost investment or jobs significantly, the results would somehow be different the second time around. Corporations already have considerable cash reserves on hand to invest domestically if they so choose. And repeating the tax holiday would provide large benefits to many of the corporations that have acted most aggressively to shift income overseas and avoid U.S. taxes and would encourage these and other firms to shift even more income overseas in anticipation of future tax holidays.

Policymakers also should reject fanciful claims that such a tax holiday would not increase the deficit. It is understandable why lobbyists are making these claims — it is difficult to explain why policymakers should enlarge the deficit in order to hand massive windfalls to large powerful multinational corporations at the same time that they are talking of a need to cut everything from Social Security benefits to education and investments in research and infrastructure on the grounds that deficits are too large.

If policymakers are concerned that companies now incur a tax liability when they bring foreign-earned income back to the United States, they could consider ending or limiting the feature of the tax code that created this disincentive in the first place: the ability to indefinitely defer payment of U.S. corporate income taxes on overseas profits. Such a step, by reducing the tax distortions between foreign-held and repatriated earnings, would have the same practical effect as the tax holiday while raising — rather than losing — significant new tax revenue helping to preserve the corporate tax, and eliminating a major incentive for firms to shift jobs and profits overseas.