Use access key #2 to skip to page content.

Corporate Tax Holiday is a Bad Idea…well, kinda not?

Recs

8

July 08, 2011 – Comments (5)

Recently, there has been a hubbub about a corporate tax holiday for repatriating funds. There are many opinions pro and con, and I wish to officially sit on the fence like a mugwump.

Yes, I know: first I have to explain what ‘repatriation’ is. Let us say that you are Coca-Cola and have made $100 of profit in the EU, upon which you pay a 25% corporate income tax. Now, you wish to bring the remaining $75 home to the US. Problem: you must also, on top of the 25% you have already paid, pay another 35% in corporate US tax. So, you decide to leave that $75 in the EU to save money.

It is estimated that there is $1 trillion in corporate funds that US companies wish to bring home, save for the tax consequences.

Let us say, as suggested in a recent Fool article, that we allow a tax holiday and that all US corporations can repatriate any and all funds, and only pay 5%. This would be a cool, fast $50 billion in tax receipts that will go directly into Uncle Sam’s pocket.

Problem: last time this was tried, it failed. Well, not quite. Last time, it was sold as an employment increasing thingie-ma-bob. Nonsense: if we try it again, it will not increase jobs by one bit. However, it will do much to close the current budget gap.

Is this good? Yes, but no: US corporate tax policy is totally screwed up. The real solution is to rectify US policy. Perhaps: reduce US rates to ‘only’ 25%, and for repatriated profits, you will get a credit for taxes already paid for foreign corporate taxes?

5 Comments – Post Your Own

#1) On July 08, 2011 at 2:00 PM, chk999 (99.97) wrote:

Most other countries has a tax harmonization policy so that their companies with foreign operations don't have this problem. We should adopt one.

Report this comment
#2) On July 08, 2011 at 2:38 PM, turdburglar (43.40) wrote:

This is just a tax break for making profits overseas with foreign workers.  If you don't have to pay taxes, that is one more reason to fire Americans and ship jobs to China and India.  That said, it might just work and as a shareholder of MSFT and CSCO I'll be happy with the payday.  But I might not be as happy with the unemployment check that I'll get if we keep up the policy of only taxing profits earned using American labor.

Report this comment
#3) On July 08, 2011 at 3:22 PM, smartmuffin (< 20) wrote:

A one-time influx of $50 billion is literally a drop in the bucket of our financial mess, and will solve absolutely nothing.

Report this comment
#4) On July 08, 2011 at 3:36 PM, MyunderratedLife (84.47) wrote:

http://finance.yahoo.com/blogs/daily-ticker/bill-clinton-likes-corporate-tax-holiday-awful-idea-171021754.html

I don't think it's so horrible...

Report this comment
#5) On July 08, 2011 at 4:55 PM, Mega (99.95) wrote:

"Perhaps: reduce US rates to ‘only’ 25%, and for repatriated profits, you will get a credit for taxes already paid for foreign corporate taxes?" 

"Most other countries has a tax harmonization policy so that their companies with foreign operations don't have this problem. We should adopt one."

The US has tax treaties which limit double taxation: http://www.irs.gov/businesses/international/article/0,,id=96739,00.html

The US has the most profitable multinational corporations on the planet, so maybe our current tax system is not so unfair to multinationals?

Report this comment

Featured Broker Partners


Advertisement