Whether companies bring profits earned overseas back to America is not what is most important. What is most important is whether the companies repatriating foreign earned profits increase the number of Americans they employ in the U.S.
Solution: Base the tax rate each company pays on the increase/decrease in number of Americans each company employs in the U.S.
This approach targets the primary objective – an increase in the number of American jobs.
If we instead universally lower the tax rate on foreign earned profits repatriated to the U.S. with no connection to actual jobs created, there is no guarantee of job creation, only a hope for job creation. This policy also creates the potential for a free-rider problem in which some companies benefit from the lower tax rate without actually creating jobs. This situation is highly inefficient as it reduces tax cuts available to companies creating jobs due to non-job creating companies siphoning off a portion of the available tax savings.
A more efficient approach to creating jobs through the repatriation of foreign earned profits is to base the rate at which each company’s foreign earned profits are taxed on each company’s rate of job creation in America. If corporations create more jobs in the U.S., they pay a lower tax rate; if they don’t, then they won’t.
It is time we implement performance-based corporate tax policy, policy that both provides real incentives for job creation and a more efficient allocation of tax cuts.
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