R40178 – Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis – 12/21/2012

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Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis

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Author: Donald J. Marples, Section Research Manager, Specialist in Public Finance; Jane G. Gravelle, Senior Specialist in Economic Policy

Pages: 12

Viewed in the current debate on how to most efficiently stimulate the economy, economic theory suggests that the simulative effect of a temporary tax cut for repatriations may be offset, or more than offset, by exchange rate adjustments that would reduce net exports. In addition, how businesses use repatriated earnings will impact the stimulative or contractionary effect of a tax cut for repatriations. For example, repatriated earnings will have a larger stimulative effect, or smaller contractionary effect, the greater the degree to which they are used to increase current investment. A smaller stimulative effect or a larger contractionary effect will result, in contrast, if more of the repatriated earnings are used to shore up “cash-flow” issues or pay dividends. This report will be updated as legislative events warrant. Bills: H.R. 937, H.R. 1036, H.R. 1834, H.R. 2862, S. 727, S. 1671