Senators McCain (R-AZ) and Kay Hagan (D-NC) are introducing legislation to allow multinational corporations to repatriate overseas profits at the rate of 8.75% instead of the corporate rate of 35% (the effective rate, though is about 22%). This proposal replicates the actions of the Bush administration in 2004 who granted a similar tax holiday. The goal of both schemes is to “create jobs.” In 2004, the projection was that jobs would flow from the newly retrieved funds. Surprise, surprise, it didn’t happen.
Independent studies showed that when a tax holiday was last offered, in 2004, the lower tax rate for returning profits spurred little hiring or domestic investment. Most of the money was used to buy back stock. Democrats have said they are concerned that could happen again with a tax holiday.
On top of this, the congressional Joint Committee on Taxation estimates the plan will cost the treasury $78.8 billion in lost Federal revenue. And repeating a dangerous precedent will send a signal to companies that they can launder profits offshore and then be granted special dispensation to bring the money back onshore.
The argument that 8.75% is better than nothing assumes we have no other options. We do. Companies based in the United States are subject to the laws of the United States. We, the people, can pass laws that tax overseas profits. It’s a simple matter of legislation.
Companies should be expected to pay their fair share.
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