by Mish

Would another tax holiday create jobs?

The New York Times says “Not Necessarily

President-elect Donald J. Trump has said he would like to create a “tax holiday” so that American companies can bring back profit that was generated overseas at a lower rate. In his view, this influx of cash will create jobs.
But corporate boards and executives may have different ideas.
They are likely to use much of the estimated $2 trillion held overseas to acquire businesses in the United States, to buy back their own stock or to pay down debt, say advisers of America’s top corporate executives.

Historical Guide

For clues as to whether another tax holiday would create jobs, all one needs to do is investigate Corporate Tax Holiday History.

In 2004, the United States Congress enacted such a tax holiday for U.S. multinational companies, allowing them to repatriate foreign profits to the United States at a 5.25% tax rate.
Under this law, corporations brought $362 billion into the American economy, primarily for the purposes of paying dividends to investors, repurchasing shares, and purchasing other corporations.
In 2011, Senate Democrats, arguing against another repatriation tax holiday, issued a report asserting that the previous effort had actually cost the United States Treasury $3.3 billion, and that companies receiving the tax breaks had thereafter cut over 20,000 jobs. A second repatriation tax holiday was defeated in the United States Senate in 2009.


Address the Real Problem

It’s highly likely corporations would act exactly the same as they did last time.

The problem is not tax repatriation. The problem is US corporate tax law is fatally flawed. Allowing foreign profits to accumulate overseas at low rates while charging 35% in the US is ludicrous.

It’s easy enough (in theory) to fix that problem. All one needs to do is lower corporate taxes in the US to zero, which is where they should be.

That may not or may not spur job creation by US corporations, but it would stop all these ridiculous tax games corporations play.

Curiously, such a move would create jobs, not from US corporations, but by foreign companies moving offices to the US to escape their higher tax rates.

Mike “Mish” Shedlock

Case for Zero Corporate Taxes: Who Really Pays Them?

President Trump and Congress have their eyes on a tax overhaul now that Obamacare replacement has died.

Pre-Tax Corporate Profits Rise 0.2%, After-Tax Corporate Profits Rise 6.7%

The Trump Tax cuts strongly came into play in today's GDP update which includes corporate profits.

Jobs: How Good are the Jobs the Economy is Creating?

The Wall Street Journal has an interesting report on the jobs created since the recession.

In Praise of a Corporate Tax Cut

Bloomberg View columnist Tyler Cowen, a professor of economics at George Mason University and Marginal Revolution blogger says "Republicans have science on their side when it comes to corporate tax reduction." Is Cowen right? If so why?

Firms Spent 94% of 2004 Tax Holiday Benefit on Buybacks and Dividends

A study of the 2004 repatriation holiday shows 94% of the money did nothing to create jobs.

Illinois Too Big a Risk: GE Moves Corporate Headquarters to Boston

Chicago was allegedly in the running for GE’s corporate headquarters after the company decided to relocate from Fairfield, Connecticut where it had been located since 1974.

Trump Releases Tax Package Outline With Many Loose Ends

President Donald Trump will propose the largest tax cut in the country’s history as a way to spark sustained 3% economic growth, U.S. Treasury Secretary Steven Mnuchin said Wednesday.

As US Seeks to Lower Taxes, France Seeks to Hike Top Corporate Tax Rate to Whopping 45%

At a time when the US hopes to slash corporate taxes, France is raising them. The measure was deemed necessary when a dividend tax introduced by Francois Hollande was ruled unconstitutional. To support a hike in the corporate tax, the government appeals to "civic sense" of duty.

Pension Benefit Guarantee Corporation Running Out of Cash, Millions Affected

The Pension Benefit Guarantee Corporation (PBGC), an entity created to “guarantee” pensions of private corporations, is on the verge of bankruptcy.