Pawlenty: A Tax Holiday For Multinational Corporations ‘Makes Perfect Sense’

Potential 2012 GOP presidential candidate Mitt Romney earlier this month endorsed a lobbying push by multinational corporations that are trying to cajole Congress into granting them a big tax break. These corporations — many of which already have very low effective tax rates — want Congress to enact a tax repatriation holiday, allowing them to bring money they have stashed offshore back to the U.S. at a dramatically lower tax rate. Usually, money brought back to the U.S. is subject to the statutory corporate tax rate of 35 percent.

As of last night, Romney is no longer alone amongst 2012 GOP hopefuls in supporting this tax break. Former Minnesota Governor Tim Pawlenty told CNBC’s Larry Kudlow that such a move “makes perfect sense”:

And as to repatriating foreign income, of course, Larry, we’re getting none of that now. And offering a dramatic reduction or even a holiday for repatriation makes perfect sense.

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Pawlenty is right that, currently, money that U.S. corporations have stashed offshore is untaxed. But that’s because the U.S. tax code has the incentives completely backwards, allowing corporations to stow money offshore while still claiming domestic tax credits. This enables them to dramatically lower their effective tax rate by stashing money in tax havens.

The solution to this problem is not, as Pawlenty and Romney claim, allowing corporations to repatriate the money tax free. The corporations claim that allowing a repatriation holiday would enable them to invest in domestic operations and job creation. But Congress approved a tax repatriation holiday in 2004, and the result was corporate executives lining their own pockets and then increasing the amount of money they moved offshore, in the hopes that they could sucker Congress into approving another tax holiday sometime down the line.

The data shows that the corporations benefiting the most from the tax holiday actually cut jobs in the subsequent two years. So while a tax holiday may make “perfect sense” for Pawlenty, in terms of tax policy, it makes absolutely no sense at all.