The Trump administration wants to give companies a break on profits earned overseas and brought back to the United States — a program that’s been tried before to little effect.
Current estimates put the total stockpile that U.S firms are holding abroad so as to avoid U.S. taxes at somewhere in the $2.5 trillion range. Back in 2004, Congress approved a plan to “repatriate” such overseas funds that companies could bring back home at a reduced rate.
The program was part of the American Jobs Creation Act. The hope then, as now, was that companies would shovel that money back into the economy in the form of investment and job creation.
It didn’t quite work out that way.
Contrary to the intent, the benefits skewed toward a select few companies in a select few industries. Rather than use the money for hiring and capital purchases, companies plowed the cash into share buybacks and dividends, and many of the biggest beneficiaries actually cut American jobs in the years after the repatriation.
“While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment,” the Congressional Research Service, Congress’ nonpartisan think tank, said in a report.
The CRS cited a series of reports into the benefits of repatriation, with a common theme that the 2004 program was “an ineffective means of increasing economic growth.”