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Corporate Tax Holidays Might Not Create Jobs

Tuesday, 4 Oct 2011 | 12:03 PM ET
Stack of U.S. hundred-dollar bills
Stack of U.S. hundred-dollar bills

Allowing US corporations to bring home profits earned oversees might not be the job creation engine advocates claim, according to a pair of studies released this week.

The left-leaning Institute for Policy Studies and the right-leaning Heritage Foundation both released studies this week arguing that tax repatriation might not create jobs, according to the Wall Street Journal.

The Institute for Policy Studies looked at fifty-eight corporations that accounted for 70 percent of overseas profits repatriated under the last tax repatriation holiday, in 2004 and 2005. It found that the companies cut 600,000 jobs.

Similarly, the Heritage study argued that there would be little effect from a tax holiday for corporations.

"“The repatriation holiday would have little or no effect on investment and job creation, the key to the whole issue, simply because the repatriating companies are not capital-constrained today," the Heritage authors argue.

(Side note: The Wall Street Journal says the Heritage tax report is due to be released today. I couldn't find it on their website and the person who answered the phone there couldn't find it either. It's a bit surprising to find Heritage arguing against tax cuts.)

Legislation currently under consideration in the U.S. House of Representatives would allow corporations to repatriate profits earned overseas at a 5.25 percent tax rate, rather than the 35 percent rate normally charged on corporate profits. Many US corporations claim to earn substantial profits overseas, a move which greatly reduces the taxes they pay. An estimated $1.5 trillion dollars is currently held overseas by US corporations.

During the Bush administration, Congress enacted a tax holiday that allowed corporations to repatriate $64 billion.

Advocates of a new tax holiday claim that allowing corporations to bring home overseas profits at a lower rate would stimulate the US economy and create jobs.

Critics say temporary tax cuts are unlikely to alter corporate decision making about long term projects, including hiring new workers.

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