Why a Second Corporate Tax Amnesty Would be Even Worse than the First
Ezra Klein had a great write-up yesterday on why, when one hears the term “repatriation holiday” to describe the proposal put forth by Senators Hagan and McCain, what one should be hearing is “massive corporate-tax break that will have terrible long-term consequences.”
Independent economic studies of the 2004 tax amnesty for corporate profits parked overseas have shown it to be an abject failure that delivered none of the promised benefits. What Klein does is put in simple terms why a second corporate tax amnesty would be even worse than the first:
But the real problem, they say, will come if we offer another holiday just six years after the first. If you keep offering these repatriation holidays, what begins to happen is that they’re not viewed as one-time offers but periodic sales. In that world, corporations will simply wait for a holiday before they bring income home. That means they stop bringing money home in non-holiday years, and so that money goes effectively untaxed.
As an analogy, imagine that individuals didn’t have to pay taxes in any given year, but only had to pay them eventually. And now imagine that every 10 years or so, Congress passed a massive tax cut for individuals who chose to pay taxes in that particular year. Everyone would just wait to pay taxes in those years, and the real tax rate in this country would plummet, even if we never cut taxes permanently.
That’s why it’s so critical that Congress not fall for the false promises of the corporate lobbyists pushing hard for a second corporate tax amnesty.
Instead, Congressional leaders should eliminate the corporate tax rules that create incentives for multinational corporations to invest and shift profits overseas in the first place. Chief among those policy changes would be ending the practice of allowing corporations to indefinitely defer paying corporate taxes on profits parked overseas. Making this move toward a “pure worldwide” corporate tax system would eliminate the perverse incentives in our tax code that reward companies for shifting investment and profits overseas, and it would do so without sacrificing billions in federal revenues.