A top Treasury Department official lashed out on Wednesday against proposals to give corporations a tax holiday on their overseas profits, arguing that a previous experiment with the idea lowered revenues without boosting job creation.
"In 2004, when the U.S. enacted a repatriation tax holiday, the goal was to encourage U.S. multinationals to pay bigger cash dividends from their overseas subsidiaries and use the cash to make investments in the United States," wrote Michael Mundaca, the assistant secretary for tax policy, in a post on Treasury's website. "Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions."
American multinationals have racked up hundreds of billions of dollars in profits overseas, and they are allowed to defer the 35 percent U.S. corporate tax on those profits as long as the money stays outside the country.
Proponents of a temporary tax break on overseas profits say it would encourage U.S. multinationals to "repatriate'' that money back home and use it to create jobs here. House Majority Leader Eric Cantor, R-Va., said earlier this week that Congress should pass such a holiday before trying to tackle fundamental tax reform.
But many tax policy experts say the repatriation holiday would be little more than a giveaway, and that corporations would park even more of their future profits outside the United States as they waited for Congress to approve yet another "holiday."
Congress passed an earlier holiday in 2004, over the opposition of the George W. Bush administration.
Mundaca pointed to an earlier assessment from the Joint Committee on Taxation that estimated the 2004 tax holiday would cost billions, rather than raise revenue as proponents said. He added that a second holiday might weigh even more heavily on revenue, by encouraging multinationals to shift even more profits overseas.
Citing the nonpartisan Congressional Research Service, Mundaca also said that the corporations that benefited most from the 2004 tax holiday actually cut jobs in 2005 and 2006 and appeared to use the funds more for stock repurchases or dividend payments.
"Today, when U.S. corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation," he wrote.