Tuesday, July 12, 2011

Repatriation Tax Holiday Could Fund Infrastructure Bank

From the WSJ:

Using a repatriation tax holiday — a tax break for companies bringing back overseas profits to the U.S. — to help fund an ‘infrastructure bank,’ would be a good idea, GE Chief Executive Jeffrey Immelt said at the U.S. Chamber of Commerce on Monday. Lawmakers have proposed starting a national infrastructure bank to provide low-interest loans and loan guarantees to build highways, energy projects and water infrastructure.

“We favor repatriation of our foreign cash back into the U.S., where it can do some good,” Immelt said. “I believe Senator Schumer has a good idea: taxes from repatriation could go toward creating the infrastructure bank that in turn creates jobs.”

Sen. Charles Schumer (D., N.Y.) has said that his party would be willing to consider a tax repatriation holiday, provided the companies that benefit from the lower tax rate use the funds to help create jobs.

Under a repatriation tax holiday, U.S. companies would be enticed to bring foreign profits back to the U.S. by taxing them at a roughly 5% tax rate, rather than the current top corporate rate of 35%.

mmelt told reporters after his speech that he wasn’t sure how much support there was for a repatriation tax holiday. Academic analysis of a previous repatriation tax holiday in 2004 showed that companies then used the profits more for share buybacks and dividends than for creating new jobs. But Immelt said the current economic backdrop made the situation different now.

The last time this was tried was in the last expansion which had some of the weakest job growth on record, so we know the "this will create jobs"argument doesn't work. However, using the money to fund infrastructure makes perfect sense and should be done ASAP.