NCPA - National Center for Policy Analysis

"Jobs Act" Tax Cut Could Create 2 Million Jobs

April 8, 2004

A provision of the Jobs Act now under consideration in the U.S. Senate would cut the tax rate on capital imported back into the United States from 35 percent to 5.25 percent. This could free much of an estimated $500 billion of capital owned by U.S. multinational firms that remains trapped overseas, says policy analyst Stephen Moore.

Under the current tax law, American multinational firms must pay the business taxes in the foreign country in which they earned the money; and an additional tax of up to 35 percent if they reinvest the capital here. That gives firms an incentive to build plants, research facilities and technology centers anywhere but here. The United States is perhaps the only nation that penalizes repatriated capital in this way, with what amounts to a 35 percent tariff on re-imported capital.

  • Independent analyses by PricewaterhouseCoopers and Bank of America project that this measure -- known as the repatriation provision -- would produce a windfall of new capital ranging from $135 billion to $300 billion.
  • Economists have estimated that creating one modern manufacturing job in the U.S. costs on average about $50,000 of business investment in plant, technology, computers and equipment.
  • By that measure, the repatriation provision could eventually create more than two million new jobs for factory and technology workers.

The provision might even gain tax receipts for Uncle Sam, concludes Moore, as firms scared off by the old 35 percent rate line up to pay the one-time, 5.25 percent border tax.

Source: Stephen Moore (Club for Growth), "John Kerry's Acorn," Wall Street Journal, April 8, 2004.

For WSJ text

http://online.wsj.com/article/0,,SB108138596868577528,00.html

 

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