Is a “holiday” really the solution?

Corporate America is pushing for a “tax holiday” to help create jobs and stimulate the U.S. economy. While the logic seems well founded, the strategy has proven ineffective and even detrimental in years past.

The idea behind these “holidays” is that they offer corporations a day to bring profits from abroad back stateside without having to deal with the associated taxes involved. Normally, these taxes disincentivize corporations from using profits earned globally to invest domestically. Popular: The Top 7 Corporate Tax Evaders>>

Part of the issue with this line of thinking though is the fact that companies will be inclined to wait to bring their profits from abroad back to the US until the “holiday” arrives. Consequently, the domestic investment lost in anticipation of the “holiday” would negate the short-term surge.

Another issue is the fact that most of the money returning stateside in the pas has been used to pay shareholders rather than fuel investment. For purposes of stimulating the economy, these are the last people who should be getting the money.

While an appealing short-term fix, history has shown that a tax holiday generally fails to live up to its promises.

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