Dhammika Dharmapala on How Companies Use Repatriated Profits
Would companies use repatriated profits to invest?
The idea is to first lower that fence and then transition to a system where foreign profits aren't taxed by the U.S. at all. The government has tried something like this: a one-time tax holiday in 2004 brought in an estimated $300 billion, up from the $60 billion repatriated in a typical year. Economist Dhammika Dharmapala at the University of Chicago Law School studied what happened.
“The repatriations under the holiday did not seem to lead to increased domestic investment and employment, and were reflected mostly in share repurchases,” Dharmapala said.
That's right, rather than invest in new factories or R&D, companies bought back their own stock or paid dividends to their shareholders.
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