“We need a (tax) holiday”

Posted: 20 June 2011 in Uncategorized
Tags: , ,

If you listen carefully, you can almost hear the CEOs of Apple, Google, and other multinational corporations singing along with Madonna:

You can turn this world around
And bring back all of those happy days
Put your troubles down
It’s time to celebrate
Let love shine
And we will find
A way to come together
And make things better
We need a holiday

A tax holiday, that is.

According to today’s New York Times, the nation’s largest corporations, with tens of billions of dollars in profits stashed abroad, are pressing Congress and the Obama administration for a giant tax break to bring the money home.

The corporate argument is that repatriating the profits would lead to increased government revenues and more jobs. But their argument is no more convincing than Madonna’s music. First, the tax boost would only be temporary. Second, and more important, historical experience (from the 2005 Bush administration tax holiday) suggests that repatriated profits will be used for purposes other than new job creation, such as dividends and stock buybacks. According to a 2009 study by Dhammika Dharmapala, C. Fritz Foley, and Kristin J. Forbes [pdf],

Repatriations did not lead to an increase in domestic investment, employment or R&D — even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained. Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders.

The United States does not need a tax holiday for foreign profits. What we need is more say over how profits, both foreign and domestic, are appropriated and distributed.

  1. […] no, as I have also explained, repatriating corporate profits will not lead to more investment, government revenues, and […]

  2. […] no, as I have also explained, repatriating corporate profits will not lead to more investment, government revenues, and […]

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