Tuesday, June 28, 2011

Tax Repatriation Isn't As Simple As It Seems

There are a few different arguments on how the government should handle corporations bringing foreign income into the United States.

Some believe that a holiday should be put into effect into encourage investment, which will in turn fuel employment.

Another argument I've recently read suggests that by lowering the tax rate on repatriated income would actually encourage companies to send jobs offshore.

This blog post in Forbes explains the problem with a tax holiday on foreign income. Companies that employ cheaper overseas workers can bring their profits into the country at a reduced rate, while those that maintain their operations here in the states have to continue to pay the full 35% rate on their profits. Plus, whatever tax was paid in foreign taxes can be used to offset domestic taxes with the foreign tax credit.

This situation creates huge incentives to sending more jobs overseas as wages are lower and it will actually save companies tax wise to do so.

It seems that in order for a tax repatriation holiday to really make sense, it would have to spur enough domestic investment to offset the built in tax incentives.

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