End This Crazy Tax: It Will Boost the Economy – Cisco Systems, Inc. (CSCO), Apple Inc. (AAPL)

Second, the repatriation tax is virtually unique to America. Of the G-7 group of nations, only America exercises a repatriation tax. Among the 34 OECD nations, 26 impose a “territorial” tax system, where profits are only taxed where they are earned, with no repatriation owed when earnings are brought back to a company’s home country. Two of the last holdouts, Japan and the United Kingdom, switched to a territorial tax system in 2009. With the competition based in countries that use territorial tax systems, American companies are at a disadvantage. The easiest way for them to compete is to keep foreign profits in foreign bank accounts. The loser is the U.S. economy.

Congress allowed a repatriation holiday in 2004 as part of the American Jobs Creation Act. Corporations brought home more than $300 billion, according to the IRS. Yet with scant evidence that the holiday directly helped create jobs, lawmakers called the one-time deal a failure. Instead, every $1 of extra cash repatriated increased dividends and share buybacks by more than $0.90 — a practice the law prohibited, but one that was nearly impossible to enforce since money is fungible. But so what? More than half of all U.S. households own equities. They benefit far more when corporate cash is used for dividends and share buybacks rather than hoarded in a bank account in Geneva.

The main argument against abandoning the repatriation tax is that it will entice corporations to ship business and jobs to countries that have lower tax rates. But they are already doing that. And it’s a global economy — the majority of S&P 500 earnings growth over the next five years will come from overseas, according to analyst Bob Doll. We can pretend it’s otherwise, or move toward a more competitive tax code.

The article End This Crazy Tax: It Will Boost the Economy originally appeared on Fool.com and is written by Morgan Housel.

Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends Apple and Cisco Systems (NASDAQ:CSCO). The Motley Fool owns shares of Apple and Oracle.

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