These days it seems that almost every discussion includes the word “stimulus.”
But about all most of the proposals coming out of Washington would stimulate is higher taxes in the future. They aren’t what most economists consider “economic stimulus,” much less have the ability to produce any jobs and grow the economy.
There is, however, at least one available option with a track record of success that so far has been excluded from consideration: allowing companies to bring capital from abroad back to the U.S.
Many U.S. companies, especially those in the pharmaceutical or technology industries, have significant financial assets overseas. Why? Because in our global marketplace companies need to grow and compete in those markets with the greatest opportunities … wherever they are located. Many companies earn more than 50 percent of their revenue, and sometimes as high as 80 percent, outside the U.S.
These earnings, however, are trapped overseas due to U.S. tax laws that our companies’ foreign competitors do not face. U.S. companies have to pay income tax, at a 35 percent top corporate rate, on monies brought back home even after paying the taxes in the jurisdictions where they earn their money.
But there’s an easy fix. In 2004, Congress enabled U.S. businesses to return $360 billion of their foreign earnings to the United States by allowing for a temporary, reduced tax rate.
Some officials complained later that not all of that repatriated money was used for research and development or for hiring, as some had promised.
So what? Sure, some firms used part of the money to pay down debt, which may help them survive an economic downturn without cutting jobs or begging for a taxpayer bailout. Or they may have paid dividends to their shareholders, which provided individuals with some additional liquidity.
Regardless of how the money was used, it increased liquidity by $360 billion, $16.4 billion of which went to the U.S. Treasury—new money that otherwise would never have “come home.”
A similar provision encouraging capital repatriation would likely result in even more money coming back this time, injecting an estimated $500 billion in new money into the economy and the Treasury’s coffers.
At a time when the country needs cash, capital sitting overseas is the low-hanging fruit. That money needs to come home and lowering the tax is a one-way ticket to get it back.