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Repatriation Tax Holiday for Businesses Didn’t Work Last Time to Create Jobs

It’s a bit of genius that the New York Times delivers their story about businesses pushing for a repatriation tax holiday under the series headline “But Nobody Pays That.” Because that four-word title refutes just about everything in the article from the business perspective. Businesses talk about the high nominal corporate tax rate. “But Nobody Pays That.” They talk of the burden of having to be taxed on their profits earned overseas. “But Nobody Pays That.”

Furthermore, the entire rationale from businesses is based on the idea that they would sink the repatriated funds, under which they would pay a 5.25% rather than a 35% tax on money either made overseas or parked there through a tax shelter, into the economy to furnish a stimulus of hiring. Which is contradicted by… the last repatriation tax holiday:

Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy, and they promoted the proposal as “the next stimulus” at a conference last Wednesday in Washington.

“For every billion dollars that we invest, that creates 15,000 to 20,000 jobs either directly or indirectly,” Jim Rogers, the chief of Duke Energy, said at the conference. Duke has $1.3 billion in profits overseas.

But that’s not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage.

Though the tax break lured them into bringing $312 billion back to the United States, 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.

I suppose this will be now shown as evidence of the New York Times’ liberal bias, like most factual statements do.

The inescapable fact is that businesses will only spend their cash reserves when there is money to be made from doing so. “People aren’t working. We have a problem of inadequate demand,” Congressman Keith Ellison (D-MN) told me at Netroots Nation. “Businesses want to say they need certainty. How much more certainty than $2 trillion do you need?”

Ellison is referring to the $2 trillion in cash reserves already parked in corporate accounts, which has not led to a surge in employment. Another $1 trillion, moved into the US through an ill-gotten tax scheme, will just be plopped on top. Maybe some investors will make out with an increased dividend, but people won’t. You need only look at the weak hiring forecasts for small businesses in the year ahead. That survey, from the National Federation of Independent Businesses, “never sees taxes as a major problem,” said Jared Bernstein of the Center for Budget and Policy Priorities. “They see sales as a problem.”

Increasing overall demand is one of the only ways to get the country’s economy moving, not some fantasy that businesses will bring their free money back to the US, only to hand it out to people.

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David Dayen

David Dayen