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CRS.RepatriationAnalysis.013009-2

CRS.RepatriationAnalysis.013009-2

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Published by: Sunlight Foundation on Mar 30, 2011
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10/27/2011

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Prepared for Members and Committees of Congress
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At the beginning of the 111
th
Congress, economic stimulus proposals have dominated thelegislative agenda, with a broad recognition that business tax incentives are among the policyoptions to consider. Two prominent proposals, H.R. 1 and S. 1, both titled the American Recoveryand Reinvestment Act of 2009, have thus far been the focus of this debate. Both proposals includebusiness tax incentives which would increase the after-tax rate of return on domestic investment.In contrast, little attention has been given to international policy options. An exception to this is aplan to reduce the tax rate on repatriated dividends that has received some consideration. Undersuch a plan, the U.S. tax that U.S. firms pay when their overseas operations remit (“repatriate”)their foreign earnings as dividends to their U.S. parent corporations would be reduced. Thisprovision may be considered as a floor amendment to S. 1.A conceptually similar proposal was enacted as part of the American Jobs Creation Act (P.L. 108-357). The provision provided a temporary reduced rate for repatriated earnings, with thecondition that the repatriated earnings be used for domestic investment. While empirical evidenceis clear that this provision resulted in a significant increase in repatriated earnings, empiricalevidence is unable to show a corresponding increase in domestic investment or employment.Viewed in the current debate on how to most efficiently stimulate the economy, economic theorysuggests that the simulative effect of a temporary tax cut for repatriations may be partially offsetby exchange rate adjustments that would reduce net exports. In addition, how businesses userepatriated earnings will impact the stimulative effect of a tax cut for repatriations. For example,repatriated earnings will have a larger stimulative effect if they are used to increase currentinvestment. A smaller stimulative effect will result, in contrast, if the repatriated earnings are usedto shore up “cash-flow” issues. This report will be updated as legislative events warrant.
 
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˜—Ž—œ
The U.S. International Tax System..................................................................................................1
 
Repatriated Earnings Provisions in the American Jobs Creation Act..............................................2
 
Impacts of a Reduction in the Tax on Repatriated Earnings............................................................2
 
Impact on Repatriated Earnings................................................................................................2
 
Impact on Economic Growth....................................................................................................4
 
Use of Repatriated Earnings and Economic Stimulus........................................................5
 
Exchange Rate Adjustments and Economic Stimulus........................................................7
 
’ž›Žœ
Figure 1. Repatriations by U.S. Multinational Corporations, 2000-2007.......................................4
 
Š‹•Žœ
Table 1. Selected Information on 12 Corporations that Utilized the RepatriationProvisions in the American Jobs Creation Act.............................................................................6
 
˜—ŠŒœ
Author Contact Information............................................................................................................8
 

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