A slew of multinational corporations, joined by their allies in Congress, have been pushing for the enactment of a tax repatriation holiday, which would allow companies that have stashed money overseas to bring it back to the U.S. at a tax rate far below the usual 35 percent corporate income tax rate. Sen. Johm McCain (R-AZ) and Kay Hagan (D-NC) have proposed a plan under which corporations could repatriate money at an 8.25 percent tax rate, which would be lowered to 5.25 percent if they use the money to create jobs.
The problem with this plan is that it’s already been tried, and it didn’t work. In 2004, corporations used the money they brought back to enrich executives and buy back stock, not for job creation. In fact, the corporations that benefited the most from the tax break cut tens of thousands of jobs in the subsequent years, and companies pushed huge amounts of money offshore in anticipation of a future holiday.
McCain is evidently well aware of the shoddy history of these holidays, because why else would he include a special, even lower rate for companies that use the money to create jobs? In fact, McCain said at a Reuters summit yesterday that he is fine with giving corporations this big tax break so that they can use it to buy yachts and jets:
In defense of legislation he is offering in Congress, McCain said his bill would try to ensure that profits brought into the country from abroad at a reduced tax rate would be devoted by corporations to investment and job creation.
“If you brought $1.5 trillion back to the United States of America, it’s bound to have some positive effect somewhere,” he said at the Reuters Washington Summit. “I don’t see how it would not. Even if they buy more yachts and … corporate jets and all that, it’s bound to have some effect.“
McCain is technically correct that having corporations spend money on yachts and jets is stimulus in the truest sense of the word. But providing corporations with a huge tax break in the hopes that they purchase luxury goods is hardly the most efficient way to boost employment. At the same time that McCain is promoting this cockamamie idea, he is joining his party in blocking each and every portion of President Obama’s Jobs Act that comes up in the Senate.
The Joint Tax Committee has found that a repatriation holiday would add billions to the deficit, and the previous holiday shows that there would be very little bang-for-the-buck in terms of jobs. But McCain would still forge ahead, so that companies have extra cash to buy some “jets and all that.”