Thursday October 2, 2003 4:00 pm

The U.S. Senate Finance Committee passed legislation today that creates a temporary “tax holiday” for U.S. multinationals, allowing them to repatriate their foreign profits at a 5.25 % tax rate rather than the normal 35% tax rate.   This is excellent news, as it will have a very positive effect on US tax revenues, the dollar, and corporate capital expenditures within the US.  The effect could even be significant enough to make the difference between a successful and a failed economic recovery.

Other parts of the bill repeal export tax subsidies while lowering the tax rate for manufacturers from 35% to 32%. The bill passed by a vote of 19-2, and the House of Representatives expects to work on its version of the legislation soon.  By eliminating the export tax subsidies,  the US avoids $4 billion in punitive EU import tariffs that would otherwise go into effect next year.

This tax holiday appears to be one of the best ideas to come out of congress for some time.  The timing could not be better.  Just as some of us were becoming concerned about how the US could continue to attract enough international capital to fund its balance of payments and budget deficits, not to mention an economic recovery, the US congress comes up with a strong incentive for US companies to repatriate their own capital.  I predict that many companies will do just that, and we will all be better off for it.