Several multinational corporations — operating under a united campaign called “Win America” — have been pushing Congress to enact what’s known as a tax repatriation holiday. Such a holiday would allow U.S. corporations to bring money held overseas back to the U.S. at a dramatically lower tax rate, even though the corporations calling for the holiday already pay exceedingly low taxes.
The premise of a repatriation holiday is that the money brought back will be invested domestically and create jobs. However, corporations used the money from a 2004 repatriation holiday to enrich their executives, not expand U.S. operations. In fact, the companies that benefited most from that 2004 tax break wound up cutting thousands of jobs over the subsequent few years.
But that hasn’t stopped Republicans from calling for a repeat performance. House Republicans have proposed a repatriation holiday that would have corporations pay a 5.25 percent tax rate on any money they repatriate (instead of the statutory 35 percent rate). And the idea evidently has the support of House Budget Committee Chairman Paul Ryan (R-WI), who appeared on CNBC today. He not only endorsed a repatriation holiday, but said we should permanently allow corporations to repatriate money at a lower tax rate:
It’s a good idea. We ought to have it every day. Instead of having repatriation every seven years, let’s have it every single day by going to a different system.
Of course, permanently allowing corporations to repatriate money at a lower rate would create all sorts of perverse incentives to first send money offshore for purely tax purposes and then bring it back later. But Ryan may also have been endorsing the move to what’s known as a territorial tax system. Speaker John Boehner (R-OH) has called for such a system, which, as Citizens for Tax Justice noted, would promote the permanent offshoring of U.S. jobs and funds.
Already, the prospect of repeated tax holidays has encouraged corporations to move assets offshore. According to research done at Northwestern University, following the 2004 tax holiday, corporations moved more money offshore in anticipation of another tax holiday, and “by the end of 2006 the total ‘permanently’ reinvested abroad had exceeded the 2004 peak.” The Joint Economic Committee estimated that a repatriation holiday would cost the U.S. nearly $80 billion over 10 years.