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OTHER OPINION: TAXES

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A demonstrably bad idea in pursuit of a possibly worthy goal is still a bad idea. In this instance, the demonstrably bad idea is giving corporations a federal tax break — make that another tax break — on ”repatriated profits,” money they earn overseas and bring home. The goal is an infrastructure bank to help build roads and other projects. Such an entity could help rationalize the hodgepodge of politically dictated projects and leverage private capital. But arithmetic’s basic laws must prevail: You can’t pay for an infrastructure bank with a tax break that costs money.

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U.S. firms can now defer paying corporate tax on profits they earn overseas until the money is brought to the United States. The notion of a repatriation tax holiday is that the high U.S. tax rate, 35 percent, deters firms from reinvesting overseas profits and ”traps” enormous sums, as much as $1.4 trillion, from being put to productive use in the United States. A temporary tax holiday — a reduced tax rate — would boost revenue in the short term as companies took advantage. But it would cost tens of billions in the longer run from lower taxes on income that would have been brought back eventually. The congressional Joint Committee on Taxation has estimated that cutting the tax rate to 5.25 percent would generate $25.5 billion in the first two years but end up costing $79 billion over 10 years.

Meanwhile, the holiday is not apt to create jobs. A Goldman Sachs analysis concluded that “the short-term economic benefit of such a policy would likely be minimal.” It would reward companies that maneuvered to shift profits to tax havens. Finally, a tax holiday could have the perverse effect of encouraging companies to shift operations — and jobs — overseas in the expectation of another break down the road.

This is a probably bad idea. Congress passed a repatriation tax holiday in 2004. The Congressional Research Service reported ”little evidence” that new investment was spurred.

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Sarah Nelson
Sarah Nelson joined the Brainerd Dispatch in April 2010 and works as a online reporter, content editor and staff writer. She is a world traveler, accused idealist and California native now braving the winters of Central Minnesota. She believes in the power of human resolve and hopes to be part of something that makes history by bringing an end to injustice in the world. Sarah has worked as a criminal background researcher, high school civics teacher, grant writer, and contributing writer with Causecast.org — tackling every issue from global poverty to bio-degradable bicycles. Her favorite thing about living in Minnesota is July. Sarah left the Brainerd Dispatch in April 2014.
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