JCT: Corporate tax holiday costs $96 billion

A temporary corporate tax holiday would cost the Treasury about $96 billion over a decade, according to a new estimate from the nonpartisan Joint Committee on Taxation.

{mosads}Sen. Orrin Hatch (Utah), the top Republican on the Senate Finance Committee, released the JCT estimate, as part of his argument that repatriation should not be used to stock up the highway trust fund – and should instead be saved for a broader rewrite of the tax code.

Both Hatch and Senate Finance Chairman Ron Wyden (D-Ore.) have said they’d prefer to find another way to prop up the highway trust fund. Some lawmakers have floated the idea of repatriation as a potential funding source for the highway trust fund, which could run out of money as soon as August.

“A tax holiday meant to encourage U.S. companies to repatriate funds from overseas should only be considered when it makes economic sense, such as part of comprehensive tax reform,” Hatch said in a statement. 

“The Joint Committee on Taxation has clearly outlined the ramifications of a temporary tax holiday, and the outlook is not in the best interest of the American people nor for the coffers of the federal government.”

A repatriation holiday, JCT says, would spark a brief influx of revenue – almost $20 billion in the first two years.

But the tax holiday would then quickly turn into a loser to the Treasury, losing between $10 billion and $16.9 billion over the next nine years.

Thomas Barthold, the JCT chief of staff, rattled off a series of reasons why the holiday would lose revenue, including that it would give companies reason to believe future holidays would occur in the future – what Barthold called a “moral hazard problem.”

Barthold also suggested that, as offshore profits continue to grow, companies are likely to bring more money to the U.S. anyway.

The JCT estimate was based on the last congressional legislation to allow corporations a temporary tax break on offshore income, passed roughly a decade ago.

The IRS says companies brought back $362 billion under that holiday, and proponents of another holiday say giving companies more incentive to bring back profits would give a spark to the economy. Critics of the last holiday say it didn’t bring the promised economic benefits.

Corporations currently have hundreds of billions of dollars offshore, but generally say that it makes little sense to bring that money back because of the U.S.’s high statutory corporate tax rate of 35 percent.

Companies can defer paying taxes on offshore income until the money is repatriated, and get credit for taxes paid to foreign governments.