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Tax Holiday for Overseas Corporate Profits Would Increase Deficits, Fail to Boost the Economy, and Ultimately Shift More Investment and Jobs Overseas
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| Contributor | ArmyDem |
| Last Edited | ArmyDem Jun 29, 2011 02:09am |
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| Category | Analysis |
| News Date | Thursday, June 23, 2011 08:00:00 AM UTC0:0 |
| Description | By Chuck Marr and Brian Highsmith
Updated June 23, 2011
Momentum is growing in Congress behind legislation to enact another “repatriation tax holiday” that allows multinational corporations to bring profits held overseas back to the United States and pay tax on them at a rate of only about 5 percent (rather than the normal tax rate on corporate profits). But the economic or fiscal case for doing so remains poor.
In recent days, several congressional Democrats have expressed support for some version of the legislation. [1] The momentum comes in the midst of a major lobbying campaign for it by a coalition of large and powerful U.S.-based multinational corporations.[2] Proponents argue that a second temporary repatriation holiday would boost domestic investment and jobs, which is the same pitch that proponents used to sell policymakers on a similar repatriation holiday in 2004 – and one with obvious resonance as the economy struggles to recover from recession and unemployment remains very high.
Nevertheless, the evidence shows that the first holiday failed to produce the promised results. Its primary effect was to provide a huge windfall to the shareholders of a small number of very large corporations.
Moreover, a new tax holiday would increase budget deficits by tens of billions of dollars over the coming decade. And unlike the 2004 repatriation holiday, which was sold as a “one-time-only” event, a second holiday would send a powerful message to corporations to shift investment and jobs overseas and hold the profits there — until yet another tax holiday is declared. Indeed, enactment of another such tax holiday would further embed the shifting of investment, jobs, and profits overseas as a major tax avoidance strategy for many U.S. multinational corporations.
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