James Pethokoukis

Politics and policy from inside Washington

White House confusion on corporate tax holiday

March 23, 2011

The White House perhaps rightly worries, via a Treasury blog posting, that a tax amnesty for U.S. companies repatriating profit might distract from broader reform. (House GOP Majority Leader Eric Cantor recently came out for the idea.)  But its economic objection to the idea is confused.

As things stand, there’s an incentive for companies to stash cash overseas, because bringing it back triggers a U.S. tax rate of up to 35 percent, depending on the level of local taxes already paid. A big but temporary reduction could see a lot of cash returning to the domestic economy — especially in the technology and drugs sectors.

Treasury notes, though, that this might result in very little direct new investment or job creation. When such a holiday was last tried in 2004, tax data show that 843 companies brought back nearly $400 billion. But for every dollar returned, about 91 cents went toward share buybacks with another eight cents toward boosting dividends, according to research from economists at the University of Connecticut and the National Bureau of Economic Research.

Meanwhile, President Barack Obama and others want to reform corporate taxes more broadly. A reduction in America’s fairly high headline tax rate would most likely come with the elimination of some tax breaks beloved of companies. With limited political capital available — his own congressional Democrats don’t want to cut rates or provide a tax holiday — Obama may need to focus on this more lasting change. Moreover, if company bosses are given reason to believe they’ll get an amnesty every few years, they might lobby harder to keep their favorite tax breaks, thereby derailing reform.

If the political calculation is slightly negative, though, the economic one tips the other way. Treasury is stretching a point in assuming the government would somehow lose revenue by taxing repatriated income at a sharply lower rate. In reality, without the reduction most of the money will remain offshore.

And even if all the cash returning to the United States went to companies’ shareholders, that could still generate more consumption, growth and jobs, a knock-on effect Treasury ignores. Yet this so-called wealth effect is explicitly part of the rationale behind the Fed’s second round of quantitative easing. Some economists dispute the linkages, but not the ones that work for Obama. So despite some political risks, it might be time go on holiday — as long Washington also continues the work of reform.

Comments

As well as in this little existing tablet, Brevicon 1/35 for more than each year. I started my best past frequent period at The spring of 4, 2010, in the future very early just as my best 21 years of age time lively medicine stop over the Wednesday and i also begun blood loss over the Wednesday. My very own period of time has been regular. Following Chintan Shivir, any Jaipur commitment of any bash said, “the Indian State Institutions the first will always put together the capability of girls Personal growth Communities (SHGs). Indira Gandhi possessed started NABARD 30 years ago to help you induce farming along with country improvement. “The Institutions the first thinks that the next step is to ascertain a fanatical State Bank or investment company for women to deliver economical products and services to help you most women generally and women SHGs for example.Ins PTI AMR RAI.

 

Hi! I know this is kinda off topic nevertheless I’d figured I’d ask. Would you be interested in trading links or maybe guest writing a blog article or vice-versa? My website covers a lot of the same subjects as yours and I feel we could greatly benefit from each other. If you might be interested feel free to send me an e-mail. I look forward to hearing from you! Awesome blog by the way!

 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •