Dissents: Why we should give multinationals a tax holiday
My post criticizing a "repatriation holiday" -- a limited period in which multinational corporations who bring overseas income back into the United States would get a big tax break -- channeled a lot of the economists I've talked to about this idea. But Sonecon's Rob Shapiro, whom I probably should've talked to about this idea, wrote in with a dissent:
1) It’s not at all clear from the literature that the 2004 version failed – the two critiques were based on modeling, not firm-level data, which really showed that the money was fungible (i.e., they used the funds for the permitted purposes, but shifted other funds to non-allowed purposes like stock buy-backs) . The only study that used real firm level data on how they used the funds – an academic survey of actual users of the break – did find that the funds went for the allowed purposes such as investment and payrolls (confirmed by data showing, for example, that wages went up in multinational corporations in the sectors that used the break heavily).
2) It’s also unclear, at best, that it cost revenues: Much of these overseas earnings will never come back at the full tax (especially when we have the world’s highest corporate rate, and especially those funds held in low-tax countries like Ireland). JCT’s prediction that the funds brought back under the tax break would simply be shifted from later years – so that that repatriations would fall sharply after tax break expired – didn’t turn out to be accurate. Repatriations returned to near normal levels in 2007 (IRS data for the last year we have on this).
3) This could work much better than in 2004 if we make its terms more restrictive: To spur jobs, let multinational corporations bring back $ at a reduced rate only if they first expand their total workforce and payrolls by, say 5% -10%.
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