Tax Repatriation Holiday: Bad Deal for Taxpayers

Sure enough, like crabgrass, it's back: calls for a tax holiday on foreign profit repatriation. The argument is being cloaked in desperate tones of a "stimulus." It will provide no relief from the economic slowdown: why would it? The Wall Street Journal wrote, "...a 2009 study from the nonpartisan National Bureau of Economic Research found that for every dollar companies brought back to the U.S., they invested less than one cent more domestically. Businesses that repatriated profits primarily used the funds to reward shareholders, largely through dividends and stock buybacks."

We've written before about a very sensible proposal from Bob Pozen which aims to equalize any profits being repatriated from low tax jurisdictions while raising funds for the Federal government through a 5% administrative fee. Effective tax rates paid by U.S. corporations really don't vary substantially from European rates, and so there's absolutely no need to use this infrequent event as a substitute for meaningful tax reform.

Let's hope that we don't have another unjustified handout to the largest corporations and their shareholders. I tend to hold large capitalization stocks, and I still think it's unwarranted, by the way. If these companies want to spend some money, they are already flush with cash, and yet they are not expanding employment or increasing capital spending. A shortage of cash is not the constraint, but a total aversion to employing risk capital for business expansion. Now, that's a real problem of a lack of "animal spirits," in Keynesian language.