New Hampshire Congressman Frank Guinta has a solution to reduce the deficit and create jobs “without borrowing a single dime or raising taxes.” All we have to do, says the freshman lawmaker in a letter to House leadership, is offer a tax holiday to U.S. companies that have more than $1 trillion in profits stashed in overseas subsidiaries.
“The freshman class was elected last year to get Washington’s fiscal house in order. Repatriation is a simple, direct way to help do that. We don’t need another massive infusion of additional borrowed money in an attempt to artificially stimulate the economy and create new jobs. We need genuine reforms that will encourage American businesses who are currently parking billions of dollars overseas to bring that money home and grow our economy here. That will significantly expand the government’s revenue base and free businesses to create badly-needed jobs, too, all without borrowing a single dime or raising taxes.”
Sound too good to be true?
It’s a seductive argument — reap billions in tax revenue from money that’s currently untaxed and generate economic growth to boot. On closer inspection, though, the coalition’s argument has some logical loopholes. An almost identical holiday passed by Congress in 2004 and taken mostly in 2005 did little to boost jobs or investment, according to several independent economic studies.
The 2005 repatriation “did not increase domestic investment, employment, or R&D,” but did boost share buybacks, concludes a forthcoming Journal of Finance article by Illinois’ [Dhammika] Dharmapala, C. Fritz Foley at Harvard Business School and Kristin J. Forbes at the Massachusetts Institute of Technology Sloan School of Management.
One anecdote makes the point acutely: Hewlett-Packard, even as it was pulling its $14.5 billion home from abroad, announced plans in 2005 to reduce its workforce by 14,500.