Tax Holiday Would Be Bad Addition to Budget Agreement
As part of ongoing budget talks, Senate Republicans have reportedly floated the idea of “paying for” repealing at least part of sequestration with a repatriation tax holiday — that is, allowing multinational corporations to bring profits held overseas back to the United States at a temporary, vastly reduced tax rate. But a repatriation tax holiday can’t pay for anything because it would cost billions of dollars a year, as Congress’s Joint Committee on Taxation (JCT) has found. And the last time that Congress tried this policy, it failed miserably to deliver any economic benefits.
A costly corporate tax cut. JCT analyzed a repatriation holiday proposal in 2011 and found that while it would boost revenues initially, as companies rushed to take advantage of the temporary low rate, it would bleed revenues for years and decades after that (see graph). Even over the first decade, a repatriation holiday would cost about $79 billion, according to JCT.
As JCT explained, the single biggest reason a repatriation tax holiday would be so costly is that it would encourage companies to shift more profits and investments overseas in anticipation of more tax holidays.
Senator Lindsey Graham (R-SC), however, reportedly said yesterday that “[i]t’s just stupid” that official estimates show repatriation to lose significant revenue and suggested changing congressional “scoringkeeping” rules in order to ignore these costs. It is appalling that amidst current concerns about the nation’s long-term debt, a policymaker would propose to ignore inconvenient estimates produced by non-partisan congressional analysts and substitute made-up “facts.”
A proven policy failure. Congress tried a repatriation holiday in 2004, with companies claiming that they would use the repatriated cash to invest in jobs. It proved an embarrassing failure. Independent studies show that it didn’t boost jobs or the economy; in fact, many of the companies that got the biggest tax breaks under the holiday then laid off thousands of workers.
A new holiday would once again encourage companies to shift more and more profits and investments overseas, keep the money there, and wait until a vulnerable political moment appears to press for a new holiday. That’s why Congress, when it enacted the 2004 holiday, said that it should be a one-time-only deal. Another holiday would give the biggest rewards to the companies that most aggressively shifted their profits and investments offshore after the 2004 holiday — and lobbied hard for a new one. A repatriation holiday is a mistake that policymakers shouldn’t repeat.