Wednesday, December 7, 2011

Amnesty good for me but not for thee

Want to make a Republican apoplectic and to receive a stern lecture on incentives? Suggest a compromise that somehow involves a path to citizenship or permanent residency for some of the 11 million or so unauthorized immigrants aliens in this country.

Someone mentioned Newt Gingrich's musings about a pathway to citizenship for some long-term immigrants to Republican Representation Brian Bilbray, causing him to spew
They don’t understand that talking about amnesty to reduce illegal immigration is about as logical as somebody saying, ‘Let’s drill a hole in the bottom of a boat to let the water out.’ You’re going to cause a whole new wave of illegal immigration.
Rep. Bilbray even criticized the mere discussion of these proposals.
It’s sending a signal to the world that a candidate for president, or worse, the president himself, has announced that if you break the law and come to this country illegally — if you risk your life or be one of those who die along the border and try to come to the country illegally, we will reward you if you come in here ... Everyone who is given a job and any elected official who is announcing to the world that Washington and the federal government is going to reward illegal immigration are part and parcel to the problem of sending a clear and defining message. Even Newt Gingrich would say that our problem is that we’ve sent mixed messages in the past and that’s enticed people to come here and be here illegally.
Once you get past the spittle and snarling, Rep. Bilbray and other Republicans seem to be making the point that amnesties, even partial ones, create some awful incentives. While the policy addresses some immediate concerns, it also creates future problems if the next set of people considering whether to enter and stay in the country without authorization come to expect periodic amnesties.

So if amnesties encourage such bad behavior, why are Republicans (regrettably abetted by some "centrist" Democrats) advocating a one-year, no-strings-attached, "olly olly oxen free," tax amnesty for multinational corporations who have hidden their revenues in other countries?

Specifically, corporations are allowed to defer taxes on profits that are held abroad. The tax amount, which would generally equal the different between the applicable U.S. tax rate and what the corporation pays in the country where the profits are initially parked, is only due when the company brings the money back into the country. Instead of this eventual amount, Republicans are proposing a special low-low rate of as little as 5.25 percent if corporations rebate the money now. Rep. Bilbray (the same don't-you-idiots-understand-incentives guy) has even submitted a bill that would temporarily reduce the tax rate to zero.

Republicans main argument about the tax amnesty is which hostage to take to pass one--the payroll tax break that is due to expire this year or the broader set of Bush-era tax cuts that are due to expire next year.

Absent from those arguments, however, is any discussion of the bad incentives that tax amnesties create. One reason why corporations delay repatriating money to the U.S. is the possibility of a lower tax rates, including special amnesty deals, in the future. There's precedent for this thinking because a similar "one time" amnesty was granted in 2004. And consistent with the incentives argument, multinational corporations greatly increased the amounts of profits that they stashed overseas following the 2004 amnesty. If a similar policy were enacted today, the professional staff of the Joint Committee on Taxation predict that the bad incentives would lead to a net cost of $79 billion over 10 years.

When human beings are concerned, these policies are nasty "amnesties." When corporations are concerned, they're "holidays." Go figure.

4 comments:

polifrog said...

Not sure about you, but I would rather our nation be overrun with dollars than immigration rates higher than our ability to absorb.

Go. Figure.

Dave Ribar said...

Poli:

We both agree that it would be worthwhile to have those profits repatriated. Unfortunately, the tax amnesty creates perverse incentives that work against that. Some profits will come back to the country during the amnesty, but even more profits will be squirreled away afterward (short-term gain but even larger long-term pain). Over the long-run, the nation would lose dollars.

polifrog said...

There is an international market for low taxes that international corporations, by definition, have access to. Any discussion concerning a "tax amnesty" for such corporations admits the fact that the US is uncompetitive in that market.

However, by only dipping our toe in the solution followed by a planned retreat ("tax amnesty") we do indeed set up the perverse incentives you describe. It need not be that way.

It would be best if our taxes in this realm were more competitive on the world market through permanent reductions.

The negative incentives you describe in both immigration and temporarily and lowering the barriers to profits entering our nation (I am not comfortable with the term repatriation which implies these profits left our nation) are created by their temporary nature.

Each policy should be free of "planned obsolescence".

Barriers to illegal immigration should be firm, not temporary, while paths to citizenship available, not temporary. Neither should we dabble in international tax competativeness; it should be embraced.

Dave Ribar said...

Poli:

I agree with you about the need for overarching corporate and personal tax reform.

The proposed tax amnesties do not address those issues.