Yet the author of the corporate study, Allen L. Sinai, has since cooled on the idea. His research was conducted during the financial crisis in late 2008. Then, corporations could not easily raise capital, Mr. Sinai, an economist at Decision Economics, explained in an interview last month. They were reluctant to hire workers or spend in other ways.
Rethinking the Plan
Today, credit is readily available. In fact, many of those pushing hardest for the break are sitting on billions in cash in the United States that they could use to hire if they chose.
The break would make sense, Mr. Sinai now says, only if Congress carefully restricted the proceeds to increases in domestic hiring and investment.
“Many who want this policy try to advocate it as a jobs-creation program, but that is not what I found,” he said. “What I found was that it would shore up the corporate balance sheets during the depths of the financial crisis and create some jobs. But the balance sheets are already so good that I don’t think there’s a rationale any longer that simply rebuilding the companies’ finances will lead to hiring.”
Supporters of the measure had also promoted the tax law as good for investment in plants and research. An academic study, published in the National Tax Journal last December, said companies reported investing as much as $75 billion of the money in equipment and facilities.
For Merck, it was nearly a wash. In the three years beginning with the repatriation, the company increased its spending on research and development domestically by several billion dollars, according to regulatory filings. But its capital spending actually declined in that time.
Much the same happened elsewhere, according to a review of taxpayer data by the National Bureau of Economic Research. “For every dollar that was brought back, there were zero cents used for additional capital expenditures, research and development, or hiring and employees wages,” said Kristin J. Forbes, a professor of economics at the Massachusetts Institute of Technology’s Sloan School of Management who was a member of President Bush’s council of economic advisers and who led the study.
A Short-Lived Boost
The break did provide the Treasury with a quick shot in the arm. When Merck brought its $15.9 billion back, it paid $731 million to the I.R.S. All told, companies brought back $312 billion in 2005 and paid $16 billion in taxes.
The numbers would presumably be much bigger now. Technology companies, in particular, have been holding more profits abroad. Companies based in the United States have increased their holdings offshore to more than $1.5 trillion, meaning the tax break could generate $50 billion in tax revenue the first year.
The budget aid could be short-lived, however. Because companies would be encouraged to bring back profits in one year, tax revenues would be smaller in future years. Furthermore, companies might park future profits offshore in hopes of another holiday. The Joint Committee on Taxation, the nonpartisan Congressional office, estimated the program’s cost at $79 billion in lost revenues over 10 years.