A group of multinational corporations have been undertaking a quiet lobbying campaign in an attempt to goad Congress into approving what it known as a tax repatriation holiday. Such a holiday would allow these corporations to bring money they have stashed overseas back to the U.S. at a dramatically lower tax rate. Usually, repatriated money is subject to the statutory U.S. corporate tax rate of 35 percent, and remains untaxed until it comes back to the U.S.
The corporate case for this tax break is that it will bring a flood of capital into the U.S. that will be spent on domestic investment and job creation. 2012 Republican presidential contender Mitt Romney is pushing the policy by making similar claims. However, research into a previous repatriation holiday — enacted by Congress in 2004 — shows that it did not deliver the promised returns in terms of investment or job creation, instead going to line the pockets of corporate executives.
Not only that, but the 2004 tax break also wound up increasing the amount of money corporations stow offshore, as they parked even more of it there in the hopes that Congress would approve another holiday somewhere down the line:
Research by Northwestern’s Brennan indicates companies rationally concluded that if they were granted one special one-time tax break, they might very well be granted another. That gave them the incentive to attribute even more of their profits to foreign operations, like a shopper waiting for an end-of-season sale. By the end of 2006 the total “permanently” reinvested abroad had exceeded the 2004 peak. It has continued to grow since.
Of course, it makes sense that corporations would simply leave money overseas, rather than pay the statutory tax rate, if they are convinced that Congress will continue to approve misguided tax breaks over and over. Sen. Kent Conrad (D-ND) said that approving another tax holiday without closing the myriad loopholes in the corporate tax code “makes a farce out of the whole system.”
As CAP’s Seth Hanlon noted, the nonsensical U.S. corporate tax code combines the ability to stow tax-free cash overseas with a slew of loopholes; these have driven corporate tax revenue down to one of the lowest points in history. Approving another repatriation holiday would fix none of those problems and constitute just another giveaway to corporations that already aren’t paying their fair share.