Tax Repatriation: You Can’t Turn This into A Good Idea

My experience in policy making has led me to try to strictly obey a couple of basic precepts. First, keep it simple. Unintended consequences abound, and the more tweaks you have to build in to get the policy to do what you really want it to do, the more likely something will go wrong.

Second, it’s better not to pass a bad policy than to try to make it a good one. Why not? See rule #1 above.

These caveats come to mind in thinking about the tax repatriation holiday that’s getting some buzz these days. This is where you let multinational corporations who’ve been “deferring” taxes they owe to the Treasury—holding them overseas—get a time-limited break to bring them back (to “repatriate” them) at a much reduced rate (5%!!). See here and here.

The core of the critique is that while the corporations who take advantage of this tax break claim that they’ll invest the tax windfall and create more jobs, the evidence shows otherwise (we tried this before, back in 2004).