CORPORATE TAX HOLIDAYS JUST DON’T WORK!

Once again, during last night’s (so-called) “Debate”, Donald Trump suggested a Corporate Tax Holiday, as the best way to tap into untaxed corporate dollars held overseas.  Yes, that money could be brought back to the U.S, after paying a minimal tax, and added to the government coffers.  But, do Tax Holidays really work in practice?

This is an oft-repeated Republican Mantra—a so-called “Win-Win”—both for the companies and the country.  But, remember that the government can, in no way, mandate how corporations use their after-tax funds.  Such holidays can be good for corporations, but not necessarily for the Nation.

The last Corporate Holiday brought back hundreds of billions of dollars, for which the corporations paid a tax rate of just 5.25%.  Now, let’s assume that, if $1 trillion were repatriated, that would result in a mere $52.5 billion addition to the U.S. Treasury, or just 1.4% of the total 2015 U.S. Government Expenditures of $3.7 trillion.  The corporations, for the most part, in 2005, did not expand their businesses or increase hiring; rather, they paid dividends to shareholders, re-purchased shares of their own stock and paid executive bonuses.

The Joint Committee on Taxation is a nonpartisan committee of the U. S. Congress.  In previous studies, it had reported that, in the short-run (perhaps a couple of years), tax revenue increase following a Holiday; but, then they drop-off.  In 2014, Mr. Thomas Barthold, the JCT Chief of Staff, wrote that:  “A second repatriation holiday may be interpreted by firms as a signal that such holidays will become a regular part of the tax system, thereby increasing the incentives to retain earnings overseas,”

Lastly, let’s think of the many middle-class workers who feel that they have been left behind in the Economic Recovery, which began after 2008.  They pay a Federal Income Tax rate of 15%-to-25%, and their wages are not even rising in-line with inflation, let alone them even getting a leg-up.  So, while Corporate America may get a substantial Tax Holiday, from time-to-time, such events are grossly unfair to the ordinary taxpayer!

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