Is United States Corporate Tax Policy Outsourcing America? A Critical Analysis of the Proposed Tax Holiday for Trapped CFC Earnings

U.S.-based multinational corporations are calling for a tax holiday that would allow them to repatriate their foreign earnings at little tax cost. With over $1 trillion in earnings trapped offshore and untaxed by the U.S., these corporations characterize the proposed repatriation holiday as a stimulus of sorts for the flagging U.S. economy. But the last time the U.S. opened this loophole, it did little to stimulate domestic reinvestment or jobs creation. U.S. firms repatriated hundreds of billions of dollars under the 2005 program but eschewed domestic reinvestment and jobs creation in favor of maneuvers, like stock buybacks and dividends, that funneled the cash to shareholders. This paper examines the perils of an open ended tax holiday and proposes a more targeted solution for putting those offshore deferred U.S. MNC earnings to work creating U.S. jobs. Our proposal would force corporate America justify their participation in the subsidy and answer the question of how they will use their repatriated offshore earnings — to enrich Wall Street shareholders or to make their U.S. work force more competitive in the world economy