Indeed, temporary measures can skew incentives. Many supporters of comprehensive tax-reform said that companies have reinvested even more of their foreign profits outside the country since the end of 2004.
Proponents counter that the economic situation today – with its stubbornly high unemployment, skittish investors and record-high federal deficits – makes such concerns moot.
Treasury Secretary Tim Geithner has said the administration might be open to a tax holiday if it's part of a fundamental tax reform. Cantor argued this week that the tax holiday would be a first step toward real tax reform.
“Forging consensus on this type of fundamental tax reform will take time, so in the meantime I propose that we allow U.S. multinational companies to bring back almost $1.2 trillion in overseas profits at a lower tax so they can invest in our economy here at home,” Cantor said in a speech at Stanford University on Monday.
When the holiday passed in 2004, economists were worried about a shortage of cash in the market. But today, loose monetary policies mean cash is anything but tight. And corporations are estimated to be sitting on trillions, a point critics of the tax break make when asking why large multinational corporations need a money infusion.
Chambers and Catz contended that corporations are sitting on cash in part because of problems with the United States' policy of taxing profits of American companies wherever they are earned. That policy is almost unique in the world.
“Large cash balances remain on U.S. corporate books because U.S. companies can't spend their foreign-held cash in the U.S. without incurring a prohibitive tax liability,” the two executives wrote.
Opponents of the repatriation holiday predict that companies would use the money to buy back shares and pay shareholders rather than create jobs. But others say that would actually be better than a strings-attached approach like the one taken in 2004. In that effort, corporations had to produce plans for how they would invest the money and hire workers in the United States.
But many of the biggest beneficiaries in 2004 actually reduced their workforces in the United States.
Among Washington tax experts, the issue can be touchy. At least one formerly outspoken opponent of the last tax holiday refused to comment about the idea now because a corporate client is pushing for it.
Champions of the idea say that politics and what happens with the repatriated money isn't really the point – the tax holiday is not the end goal.
“Leader Cantor believes that we need to do comprehensive tax reform, and repatriation is a part of that which we can do more quickly to spur economic growth,” said Cantor spokeswoman Laena Fallon. “It’s part of our larger plan, and it should be viewed in that context.”
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