They passed a law that said companies had a little period of time in which they would be allowed to repatriate money at a steeply discounted tax rate. From companies’ point of view, that was great, because it increased the practical value of cash stored on the balance sheet of their foreign subsidiaries. From Congress’s point of view, the policy had two virtues. One was that since the discount tax rate wasn’t zero, the policy shift technically scored as raising, rather than costing, money. The other was that, supposedly, companies were going to bring this money back from overseas and put it to work with useful business investments and R&D.
An important 2009 study by Dhammika Dharmapala, Kristin Forbes, and Fritz Foley concluded that this did not work.
“Repatriations did not lead to an increase in domestic investment, employment or R&D — even for the firms that lobbied for the tax holiday stating these intentions,” they write. “Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders.” A 2011 Congressional Research Service analysis reached the same conclusion, as did a 2014 investigation by the Senate’s Government Affairs Committee.
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