Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis [December 20, 2011] [open pdf - 303KB]
"From the start of the 112th Congress, reform of the current U.S. corporate tax system has been widely debated as an option to stimulate the economy. Most of the debate has focused on lowering the corporate tax rate and moving toward a territorial system. An exception to this approach is a plan to reduce the tax rate on repatriated dividends that has received some consideration. Under such a plan, the U.S. tax that U.S. firms pay when their overseas operations remit ('repatriate') their foreign earnings as dividends to their U.S. parent corporations would be reduced. Variations of this type of proposal have been introduced in several bills, including H.R. 937, H.R. 1036, H.R. 1834, H.R. 2862, S. 727, and S. 1671 in the 112th Congress. […] In the context of the current debate on stimulus, the use of the repatriations and not the magnitude of repatriations stimulated are likely to be the key to the proposal's effect on U.S. economic growth. This follows from two points. First, even if sizeable repatriations occur, the rate of return on U.S. investment will be unaffected by the repatriations. Assuming firms are not liquidityconstrained, it is possible that the bulk of the repatriations will be used as dividends to stockholders or used to pay down corporate debt. This scenario is especially likely for large firms.3 Second, when the repatriations occur, those that are denominated in foreign currencies will be converted to dollars. The corresponding increase in the demand for dollars would be expected to drive up the price of the dollar in world currency markets. As a result, U.S. net exports would be expected to decline from levels that would otherwise occur, and the repatriation holiday could contract rather than stimulate the U.S. economy."
CRS Report for Congress, R40178