Aug 14th 2011
What if I told you I knew a way for the government to provide a $1 trillion stimulus to our economy and it would not cost taxpayers a penny (in fact, it would create a huge windfall of new tax revenue) – would you be interested in learning more?
It sounds too good to be true, right? Well, actually no, it is available to us right now, but it has become very political (hard to imagine anything in Washington DC becoming politicized).
U.S. companies have over $1 trillion of offshore earnings that have never been taxed in this country. Nearly all industrialized nations apply a "territorial tax system" in which companies with operations or affiliates abroad pay only the taxes imposed on profits by the host country. So in Sweden, England, and China multinational companies can, in most cases, ship earnings home with little or no extra tax imposed.
American companies pay foreign taxes, some of which they can offset against their U.S. tax liability. But any funds they return (i.e. repatriate) - to buy back stock, build a plant, pay a dividend - get hit with U.S. corporate taxes, which reach as high as 35% at the federal level, the second highest in the developed world.
This additional tax is a tremendous disincentive for these corporations to bring this money back to our country. Every member of congress would love to have this money pour into our country to boast our economy. The $1 trillion question is – do we give these corporations a tax break to return this capital and if so, how much?
There have been discussions on Capitol Hill to allow a one year “tax break” to allow those profits to come back and be taxed at 5.25% as opposed to the normal 35%. Of course, those on the right think this is good policy and would love to see this repatriation tax holiday made permanent, while those on the left hate the idea of giving another huge tax break to big business.
What do you think? Should we be giving a repatriation tax holiday or make it permanent?