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With Many Businesses Closing Their Doors, It's Time to Open a "Repatriation Window"



August 25, 2011

Remember the good ol' days? Back when the United States only had the second highest corporate tax rate in the industrialized world? Those were good times. But with Japan having implemented a 5 percent cut in their corporate rate (and potentially seeking further reductions) America is left with the ignominy of taxing it's businesses more than any other developed country. 

Permanent and fundamental reform is needed to reduce America's corporate income tax burden. Unfortunately, beyond punitively hiking taxes on a few disfavored industries (oil), President Obama has shown little willingness to make any wholesale changes to our uncompetitive tax regime.

But as NTU has argued, while we're waiting on the politics of larger reform, can't we at least build a consensus around a common-sense corporate tax holiday? The idea would be to create a period of time in which U.S.-based businesses could repatriate, that is to say, bring back, foreign earnings that they were stashing overseas so as not to pay our sky-high tax rates.

Sure, it's not ideal, but it could allow companies to reduce debt, increase investment, and jumpstart hiring. And in case you've been living under a rock (or vacationing in Martha's Vineyard) those are three things the American economy could sorely use right about now.

So what's the hold up? Well, some have begun to argue that the cost of a repatriation window is just to high, especially at a time of deep deficits. They say that the expectation of future tax holidays would lead businesses to simply park their cash overseas rather than bring it back at normal tax rates.

A new study out by NDN, a progressive think tank, should allay these fears. "Rather than the $78.7 billion revenue loss projected by the JCT, enacting a "repatriation" provision similar to H.R. 1834 this year would likely bring in a net $8.7 billion over 10 years to the U.S. Treasury," says the group via press release.

The study also found that the last repatriation holiday led to significantly more money being brought to the U.S. than expected under the JCT model and did not lead to a sharp decline in money repatriated at the standard 35 percent rate.

 

Washington should absolutely push for more fundamental corporate reforms to ensure American businesses remain competitive in the global economy, but in the meantime a corporate tax holiday could provide a useful boost to GDP while also helping to pay down our staggering deficit.


 

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