Thursday, January 29, 2009

So far, so good?

The stimulus bill as it passed the House does, it's true, contain the rule extending carrybacks for NOLs to 5 years. As I discussed here, this is probably a bad idea on balance, although the Tax Policy Center was generous enough to give it a B.

But at least the thoroughly silly proposal to reward private equity firms for buying back their debt at a discount instead of boosting employment did not make it into the House bill.

Nor did the even sillier proposal to enact another dividend repatriation tax holiday, only 5 years after the last one. (These are supposedly one-time-only special deals, although only the exceptionally naive would ever view them as such.)

If ever there was a proven policy failure, it is the 2004 dividend repatriation tax holiday. A leading paper analyzing it concludes: "Repatriations did not lead to an increase in investment, employment, or R & D - even for the firms that lobbied for the tax holiday stating these intentions. Instead, a $1 increase in repatriations was associated with an increase of approximately $1 in payouts to shareholders."

But that arguably is all the more reason to expect its repetition. After all, if insiders don't capture the benefits from it, instead of having these benefits diffused via generally stimulative extra economic activity, why on earth would they lobby for its repetition? So the fact that Holiday 2 did not make it into the House bill arguably is a surprise.

But not to despair, if you are irredeemably cynical and thus perversely welcome news of Congress living down to your lowest expectations. There is always the chance, I suppose, that these provisions will be added later on, such as on the floor of the Senate.

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