Cutting taxes on profits earned abroad would be a pointless giveaway

THE White House has long promised to fund tax cuts by scrapping unspecified loopholes and deductions. As Congress fills in the blanks, there is one source of revenue that looks all but certain to be tapped: the staggering pile of cash America’s firms keep in foreign subsidiaries, which totalled $2.6trn in 2015, according to an estimate by the Joint Committee on Taxation. (The president says the figure is $3trn-5trn today.) Unfortunately, this would probably result in a windfall for shareholders, with few gains for anyone else.

Firms keep profits offshore primarily to avoid paying corporate tax, which is levied only when money is repatriated (monies paid to foreign governments are knocked off the bill). As untaxed profits have piled up, politicians from both parties have eyed them greedily. Hillary Clinton once hoped to start an infrastructure bank with money raised from firms’ foreign cash.

Getting firms to bring more money home has been tried before. In 2004 Congress enacted a tax holiday to that end. Firms were charged a bargain rate of 5.25%, instead of the usual 35%, on repatriated profits. The law’s advocates said it would spark an investment boom, despite warnings from President George W. Bush’s economic advisers that none would materialise. The wonks were right. According to the best available study, repatriations did not increase domestic...

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