NCPA - National Center for Policy Analysis


January 29, 2009

The U.S. economy has entered the second year of a deepening recession -- a downward spiral fueled significantly by severe limits on liquidity and credit.  In light of this, the Obama team should implement a private-sector funded stimulus and allow a temporary reduction in the 35 percent tax rate that U.S. companies pay to repatriate foreign subsidiary earnings.  Doing so could inject more than $545 billion into the U.S. economy without expanding the deficit, says Allen Sinai, chief global economist, strategist and president of Decision Economics, Inc., a global economics and financial markets information firm.

According to a new study by Decision Economics Inc.:

  • Lowering the tax on repatriating foreign-earned income would inject $545 billion into our economy.
  • The injection of these funds into this credit-constrained environment could supplement, or substitute for, credit.
  • In turn, this would alleviate companies' reliance on commercial paper, bonds, stock and the federal government.
  • This measure would also stimulate real economic activity (an additional $110 billion in real GDP in 2010); increase capital expenditures including R improve business financial conditions; and, with lags, produce more jobs (net increase of 614,000 in 2011).

The study also indicates that the U.S. Treasury would receive tax revenue it would not otherwise get: an average of $28 billion per year for five years.  The resulting increase in aggregate economic activity -- higher personal income, corporate profits, capital gains, Social Security and excise taxes paid -- would generate even more tax receipts. State governments would also see some increase in revenues.

A private-sector stimulus could be a win-win for government and U.S. businesses, without further straining an already overextended Federal Reserve balance sheet, says Sinai.

Source: Allen Sinai, "A $545 Billion Private Stimulus Plan; Let's bring home foreign earnings without tax penalty," Wall Street Journal, January 28, 2009.

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