One part of the White House’s proposed tax reform framework would involve a “tax repatriation” holiday for U.S. corporations that are storing profits overseas. The logic is that offering a lower tax rate to corporations would entice them to bring money onshore that would then lead to the hiring of American workers.
The proposal re-ups a Bush-era policy that failed to boost job growth; the top 15 companies that took advantage of the repatriation holiday actually reduced their total employment of U.S. workers over the period of the policy.
Many of the corporations that took part in the tax holiday instead spent the money on stock buybacks, a way to enrich insiders and executives; among the top 15 beneficiaries, stock buybacks jumped 16 percent from 2004 to 2005 and 38 percent from 2005 to 2006.
On Thursday, White House National Economic Council Director Gary Cohn told CNBC’s Eamon Javers that it’s “fine” if corporations do the same thing after this tax holiday.
Eamon Javers: On the corporate side, your critics say on the repatriation of overseas assets that history would show that companies don’t always use those assets when they’re repatriated to invest in manufacturing and jobs and the things that you guys are talking about. They do share buybacks and other financial engineering. How can you guarantee that this won’t happen this time?
Gary Cohn: So look we’ve heard that numerous times. If that’s our worst-case scenario, that companies repatriate their money, and they use it for share buybacks and dividends, what happens? They buy back shares, they issue dividends. They pay the repatriation tax. We get another 20 percent tax on capital gains or dividends. And then the people that get that money back do what? They reinvest it back in the economy in new investments and new capital. We’re putting some very enticing rules into the system that will entice people to invest capital for the next five years. We’re giving people a five-year…