WSJ: Homecoming Victory - Homeland Investment raised revenues, lifted investment and created jobs

Wall Street Journal ^ | October 17, 2005 | Editorial

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If you want a real life example of how tax cuts boost the economy, take a look at the Homeland Investment Act of 2004. This law allowed U.S. corporations to repatriate earnings from foreign operations back to these shores for one year at a reduced tax rate of 5.25%.

Supporters argued that this tax cut would lead to an "in-sourcing" of jobs by luring corporate income parked in foreign vaults back to America. Those repatriated dollars could then be put to work for R&D spending, plant expansions, capital and technology purchases, or merely to improve balance sheets to the benefit of American shareholders....

Well, here's what has happened: In nine months the law has increased the flow of repatriated foreign capital by a whopping $225 billion. J.P. Morgan estimates that another $75 billion will return to America in the fourth quarter. About half of these returning funds were profits from pharmaceutical companies and much of the rest from such high-tech firms as Dell, IBM and Intel. We can't resist noting that this $300 billion of repatriated capital is nearly double the estimate by Congress's hapless Joint Tax Committee, which had assured us this time last year that not a dime more than $165 billion would arrive. To quote Britney Spears: Oops, they did it again.

Treasury has already collected some $12 billion directly from the 5.25% rate on the capital inflows, and the American Shareholders Association estimates that an extra $20 billion will be collected indirectly through the corporate income tax. So, just as supporters claimed, this act reduced the budget deficit and contributed to the boom of an estimated $274 billion in additional tax revenue in Fiscal 2005....

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Static versus dynamic scoring. Traditional Keynesian Economists never analyze anything past first order effects.