Policy Documents

Using What We Have to Stimulate the Economy: The Benefits of Temporary Tax Relief for U.S. Corporations to Repatriate Profits Earned by Foreign Subsidiaries

Robert J, Shapiro and Aparna Mathur –
January 1, 2009

Study Summary:

  • Report highlights the positive impact of a stimulus proposal offering a temporary corporate tax holiday to repatriate “trapped equity,” arguing for its inclusion in the 2009 stimulus package.
  • An IRS survey of worldwide American businesses with foreign tax earnings who used 2004 dividend relief “generally used the repatriated funds for permitted purposes and then used the ‘freed-up’ cash to repurchase shares.”
  • Analysis of IRS data of 2004 repatriation demonstrates increased inflows of foreign-source earnings by some $312 billion; $73 billion of which corporations used to create or retain jobs; $75 billion of which to finance new capital spending; $39 billion of which to pay down domestic debt.
    • 24% of the repatriated dividends went to new capital investments in the United States; 23% to hiring and training American employees; 14.7% to U.S. research and development; and 12.4% to pay down domestic debt.
  • The 2004 tax change produced more than $34 billion in federal revenues, including more than $16 billion in direct corporate income tax revenues and nearly $18 billion in personal income tax revenues from the additional jobs and higher wages supported by the reform.
  • Shapiro and Mathur estimate that similar legislation included as part of the stimulus program would result in nearly $421 billion in foreign-source income currently held abroad.
    • Of the $421 billion, nearly $97 billion would go to retaining or creating employment; $101 billion would go to new capital spending; and $52 billion would be used to pay down domestic debt.
    • The additional funds used for employment could save or create an estimated 2.6 million jobs, including nearly 2.1 million jobs in manufacturing.
    • The additional funds used for capital investments could increase the capital stock of U.S. manufacturing by an estimated 2.1%, which may lead to long-term average wage increases of nearly 1.3%.
    • The new policy would produce nearly $45 billion in new federal revenues, including more than $22 billion in direct corporate tax revenues on the repatriated funds and another $22 billion in personal income tax revenues on the additional wage income.
  • This infusion of new capital would be equivalent to 21% of the $250 billion provided for bank equity infusions under Treasury’s TARP program.