In October, John Chambers and Safra Catz made a case for allowing U.S. firms to repatriate foreign earnings at a low rate:

By permitting companies to repatriate foreign earnings at a low tax rate—say, 5%—Congress and the president could create a privately funded stimulus of up to a trillion dollars. They could also raise up to $50 billion in federal tax revenue. That’s money the economy would not otherwise receive.
The amount of corporate cash that would come flooding into the country could be larger than the entire federal stimulus package, and it could be used for creating jobs, investing in research, building plants, purchasing equipment, and other uses. It could also provide needed stability for the equity markets because companies would expand their activity in mergers and acquisitions, and would pay dividends or buy back stock. And when markets go up, confidence increases and businesses and consumers begin to spend.

The Chambers and Catz op-ed was widely interpreted as a call for a temporary tax holiday, but I noticed that they never explicitly call for a limited window. Chambers has, however, called for a tax holiday in other forums.

As a general rule, I hate temporary policies. If we want to encourage repatriation, let’s do it through a reform of the corporate tax code rather than a temporary tax holiday. Peter Coy and Jesse Drucker bolster the case in Bloomberg Businessweek:

There’s broad agreement that, if done right, corporations and the federal government would benefit far more from a new tax code than a tax holiday. Many multinationals, including companies on both sides of the holiday debate—such as Cisco and United Technologies—want the U.S. to adopt a territorial system similar to that used by most of the rest of the world. Under such a system, the U.S. would largely stop trying to go after companies’ worldwide income and instead would mostly tax profits earned in the U.S., whether by U.S.-based or foreign-based companies. The only other sizable countries that still use a system like the one in the U.S. are Chile, Israel, Mexico, Poland, and South Korea. Supporters of a territorial taxation include the bipartisan National Commission on Fiscal Responsibility and Reform created last year by Obama.

Coy and Drucker offer a cautionary note:

But a pure territorial system has its own disadvantages. Because it doesn’t tax companies’ foreign income, it amps up the gains from shifting income to low-tax jurisdictions. So it works only if accompanied by close supervision and rules against gaming the system. Most developed countries, including Germany and Australia, have regulations to curb this sort of gaming, meaning that their systems, while opposite in concept to that of the U.S., are not all that different in practice.

I’m not particularly troubled by this, as I think tax competition can be a constructive, disciplining force on the public sector. I do think, however, that revenue shortfalls across the industrialized world might lead other countries to tax all income rather than just domestic income, which I consider very bad news.

One of my pet causes is territorial taxation for personal income, to lighten the burden on high-earning U.S. expatriates. Some argue that this will create an incentive for wealthy Americans to leave the country, but I think that the case of Danish expatriates tells us otherwise. Despite very high tax rates, Danes tend to return to their native country once they start forming families. I think there’s considerable advantage in encouraging Americans with high earning potential to live overseas early on, and to build social networks in high-growth economies. They can then draw on these relationships after returning to the United States. The vision here is of an America that lies at the heart of an overlapping series of transnational commercial networks. This is also the case for reforming our immigration policies so that we draw in more of the world’s most talented workers, thus entrenching the lead of agglomerations like Silicon Valley, Hollywood, Wall Street, etc..