It was a ter­rible idea back in 2004. It is still a ter­rible idea—and two very dif­ferent analyses help explain why.

The first, by the con­gres­sional Joint Com­mittee on Tax­a­tion, esti­mates that while cut­ting taxes for one year on repa­tri­ated earn­ings briefly gen­er­ates new rev­enue, it sig­nif­i­cantly increases the deficit even within Con­gress’ usual 10-​​year budget window.

According to a new JCT esti­mate, such a hol­iday would boost fed­eral rev­enues by about $19 bil­lion over the first two years as firms pay some tax on funds they would oth­er­wise have kept over­seas tax-​​free. But since multi­na­tionals are get­ting a tax break for bringing money back they would even­tu­ally have returned anyway (at higher rates), JCT fig­ures the tax hol­iday would add almost $96 bil­lion to the deficit over a decade. So much for free money.

The second study, by finan­cial accounting experts Michaele Morrow of North­eastern Uni­ver­sity and Robert C. Rick­etts of Texas Tech, looks closely at how firms responded to the 2004 tax break. Their fas­ci­nating con­clu­sion: For many multi­na­tionals, the ben­efit of the hol­iday was not pri­marily tax sav­ings at all. Rather, it pro­vided an easy way to manage the earn­ings they report to share­holders by manip­u­lating their finan­cial statements.

Read the article at Forbes →