NCPA - National Center for Policy Analysis

Repatriating Capital

May 20, 2003

U.S. multinational corporations have $400 billion to $500 billion overseas in retained earnings from the operation of foreign subsidiaries, according to a new study from J.P. Morgan in New York. These funds would boost the U.S. economy if they were reinvested here. But that is unlikely because earnings of foreign subsidiaries repatriated to the United States face a tax rate as high as 35 percent.

However, the Homeland Investment Act now pending in Congress would set a maximum tax rate of 5.25 percent on repatriated earnings of foreign subs for one year.

  • The J.P. Morgan study estimates that about $300 billion of the overseas retained earnings would be returned to the United States and reinvested here if that legislation was passed.
  • The new capital supply would increase economic growth by an extra one half of one percent for several years.
  • That would translate into $50 billion of additional income to American workers and investors each year.

The legislation would have virtually no net effect on total tax collections, because most of these funds would otherwise never be returned to America.

Source: Peter Ferrara (International Center for Law and Economics), "Bringing capital home," Washington Times, May 14, 2003.

 

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