February 12, 2016

An Alternative to Reducing Taxes to Encourage Repatriation of Profits

#change date

A popular idea floating around among both Democrats and Republicans is a temporary tax reduction to allow corporations to bring profits being held overseas back into the U.S. Politicians talk of the benefits of “repatriating” corporate profits. The theory is that, although the government would, at least in theory, “lose” tax money, it would at least collect more taxes than it would otherwise.

Child thief
The Guardian wrote about this idea a few months ago. Writer C. Robert Gibson likened it to catching a child stealing money from his parents and rewarding his bad behavior by letting him keep the money. I assume the analogy to reducing the corporate tax to allow repatriation is both obvious and compelling.

Incentives come in many guises. I’d like to propose a different scheme for encouraging the repatriation of corporate profits, one which doesn’t require a sacrifice by the federal government. It uses a stick, rather than a carrot.

Rather than encouraging repatriation by making it cheaper for corporations, why not make it cheaper now but more expensive later. Allow repatriation now under the existing tax regime, but raise the tax rate substantially 12 months from now. Make that increase permanent or, if not permanent, in effect for a long period—for 10 years, say. Given that corporate management has difficulty seeing beyond the next quarter, that should supply a persuasive  incentive for bringing money back into the U.S.

Why has no one proposed this? (Corporate lobbying may have something to do with it.)

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