One of the 12 bullet points in the tax reform plan released Wednesday calls for a “one-time tax on trillions of dollars held overseas.” It was unclear what that reduced rate would be, but the last tax holiday allowed companies to repatriate overseas earnings at a tax rate of 5.25 percent. That was enacted by President George W. Bush in 2004 in another attempt to stimulate the economy.
According to Hunter’s note, around two-thirds of overseas earnings were repatriated during the previous tax holiday. That was about $362 billion, according to the IRS.
If Congress enacts a similar tax holiday, the prior example suggests that up to $1.7 trillion could be repatriated by U.S. companies. The trouble is, it’s unknown how much of the funds are in foreign bank accounts or short-term investments, though estimates suggest that around half of the $2.6 trillion is held in cash. The rest is likely held in other, more illiquid assets like factories and equipment, the note said. Earnings on those resources would be much harder to repatriate.
At a 5.25 percent tax rate, that $1.3 trillion would raise only about $60 billion or $70 billion in tax revenue. Hunter notes that a tax holiday could actually reduce the amount of revenue
A further concern is
“The upshot is that a tax on reinvested foreign earnings won’t come close to paying for the $6 trillion to $7 trillion cost of the massive cuts to individual income and corporate taxes that Trump is proposing,” Hunter wrote. “Accordingly, this doesn’t change our view that Trump’s plan will never make it through Congress in its current form.”
The top companies in terms of overseas holdings are Apple, Pfizer and Microsoft, according to a report from the Institute on Taxation and Economic Policy. General Electric and IBM round out the top five.
