Fox Business invited me to appear yesterday on “After The Bell” with Liz Claman and David Asman to discuss (i) the IRS reopening the disclosure initiative for offshore bank accounts and (ii) the ongoing debate about whether Congress should implement a corporate repatriation holiday. A link to the video is below the fold.
See the video at Fox Business.
The reopening of the 2011 OVDI is good news for taxpayers. While the initiative presently has no deadline by which taxpayers must come forward, the IRS can change the terms of the initiative at any time. If the government experiences success in getting a greater number of foreign banks to disclose the names of U.S. account holders, it is likely that the IRS will then set a firm deadline that will represent the last opportunity for taxpayers to come forward voluntarily.
Regarding the repatriation holiday, David asked me to respond to comments by Gene Sperling (director of the National Economic Council), who had previously remarked that such a holiday would not create jobs. I noted that Mr. Sperling’s negative comments were “speculation.” Whether a repatriation holiday would “create jobs” requires comparing the number of jobs that would be created without a holiday and the number of jobs that would be created with a holiday. The problem is that, once a policy is implemented and we can see how many jobs exist following its implementation, we cannot observe how many jobs would have existed had the policy not been implemented.
This problem of such “counterfactuals” is one that pervades much of the discipline of economics: the counterfactual will never occur, leaving only speculation (economists refer to this as “modeling”) about what would or would not have happened under that alternate reality. That same speculation forms the basis for political claims about the number of jobs that would or would not be created by various policy actions. (Ironically, this is the same criticism that was leveled at claims about the number of jobs created or saved by the 2009 stimulus package. See also Greg Mankiw’s take from February 2009.)
The whole debate simply points to the need for Congress to develop a coherent long-term policy regarding the taxation of foreign earnings of U.S. companies. If Congress wants to create an incentive for companies to repatriate their foreign earnings regularly, that may require a rethinking of how we tax businesses globally, potentially including steps like implementing a lower steady-state tax rate for repatriated earnings or a move towards a territorial tax system.
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