Corporate Profits Repatriation, A Problem In Search Of A Solution

Imagine a country. Poor but hardworking. It’s at or near full employment. Its workers aren’t the best educated in the world, but they’re better educated than the per capita GDP of the country would indicate. Unfortunately, their productivity is low despite a relatively solid education system because the workers lack access to capital and capital goods. They need to think of some way to inspire currency to flow in from outside in order to build their country up. You could imagine, say, post-Castro Cuba having the problem.

Just put a pin in that and ponder this email from MN:

I keep seeing proposals for a tax holiday to encourage the repatriation of profits held by foreign subsidiaries of American corps. The idea is that bringing the cash back would create economic activity.

What about reversing the idea by creating a disincentive to keep the profits offshore in the first place? Probably would take a change to the tax code, but you could certainly offset any tax credits or deductions against those profits.

There are, indeed, perennially proposals from Democrats to try to tweak tax deductions so as to discourage firms from shifting capital out of the country. That’s fine as a revenue-raising idea. But it’s important to note that there’s no real need for an alternative to the repatriation proposal because the repatriation proposal is a solution to a non-problem. This is not post-Castro Cuba. The United States is not a capital-starved country. We’re actually attracting large ongoing capital inflows. The current income tax code is kind of a mess—high rates, tons of loopholes—so I understand that various firms would prefer not to need to pay it. But there’s no bona fide policy problem that this is solving.