A Permanent Corporate Tax Holiday at an Even Lower Rate?

November 8, 2011 at 3:39 pm

Even as the business community spends millions of dollars lobbying Congress for a large, temporary tax cut on foreign profits that corporations repatriate to the United States, Republicans on the House Ways and Means Committee are proposing a larger, permanent tax cut on those profits.

So if you think a repatriation holiday is a bad idea (and evidence from a range of independent studies shows you’re right), then the GOP proposal to adopt a territorial system of international taxation is an even worse idea — a “repatriation holiday on steroids,” as former Joint Tax Committee chief of staff Edward Kleinbard puts it.

Under a repatriation holiday, corporations would get a bargain-basement tax rate of 5.25 percent on repatriated profits, compared to the regular 35 percent rate they pay on domestic profits.  Proponents claim this would create domestic jobs and economic growth.  But, that didn’t happen when Congress enacted a holiday in 2004, and Wall Street analysts like Goldman Sachs have concluded that another holiday would have only minimal economic impact.

Also, as the Joint Tax Committee and others have pointed out, another repatriation holiday would add billions to deficits.

Yet under the emerging corporate tax reform proposal from Ways and Means Republicans, corporations would pay an even lower rate on foreign profits — just 1.25 percent (see graph) — and on a permanent basis.

Giving foreign profits a large, permanent tax advantage over domestic profits would create a powerful incentive for companies to shift even more jobs and investments overseas — hardly what our economy needs.

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More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

Full bio | Blog Archive | Research archive at CBPP.org

1 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Mike #

    Maybe we can come up with a way to tax profits paid out to shareholders, but give tax breaks to profits reinvested in the business? The if I (the imaginary executive of a company) make a bunch of money overseas and I want to hire someone, I can do that and get a great deal. But if I want to use it to give out stock options (which I use to buy a luxury SUV), I have to pay the tax.

    Just a simple matter of accounting. ;-)

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