Study: Paul-Boxer "Invest in Transportation Act"

Today, NDN is proud to release a timely new study of the economic implications of the “Invest in Transportation Act” sponsored by Senator Rand Paul and Barbara Boxer. The study, “The Revenue And Economic Effects of the Paul Boxer Plan To Encourage the Repatriation of Foreign-Source Earnings by U.S. Multinational Corporations,” is co-authored by Dr. Robert Shapiro of NDN and the Georgetown Center for Business and Public Policy, and Dr. Aparna Mathur of the American Enterprise Institute. Their rigorous study predicts that the passage and implementation of the Paul-Boxer bill would provide substantial revenues for future highway and infrastructure investment, boost GDP growth and potentially create large numbers of new U.S. jobs.

A PDF version of the study can be found at the bottom of this post. 

The study analyzes extensive data from the 2004 Homeland Investment Act, the repatriation-related part of the American Job Creation Act of 2004, as a benchmark to project what would happen with the implementation of Paul-Boxer. Among the study’s main findings:

  • $1.45 trillion would be repatriated from foreign sources to the United States over the 5-year term of Paul-Boxer.
  • These huge repatriations would generate revenue gains totaling $68.9 billion over five years for the Highway Trust Fund. This addition $68.9 billion in infrastructure investment would generate between $138b and $172b in additional GDP.
  • The Paul-Boxer provision directing that 25% of repatriated funds must be used for specified purposes, including job creation and capital investment, would direct $350b over five years for those purposes, producing an additional $520b in GDP.
  • The $1.1 trillion in repatriated funds not subject to those requirements would generate at least $1.1 trillion in additional GDP.
  • All told, the GDP gains related to the bill would be sufficient to increase GDP by 1.7 percent per-year over the five years.
  • Based on past experience and the terms of Paul-Boxer, the additional funds used for job-related purposes --- hiring, wage increases, and training costs – could support the creation of millions of new jobs over five years.
  • The use of the funds repatriated under Paul-Boxer would generate additional revenues of some $63.4 billion over five years.

These findings are drawn directly from IRS data on what actually happened under the 2004 Homeland Investment , and directly challenge the way in the Joint Committee on Taxation has approached the repatriation of foreign source earnings. From the study’s conclusion:

“This study has analyzed the assumptions used by the JCT to produce those forecasts and tested them against the experience with the one instance in which Congress enacted a one-year tax incentive encouraging such repatriations, the Homeland Investment Act of 2004. The IRS data from that experiment are inconsistent with the JCT revenue estimates. The HIA induced U.S. multinationals to repatriate much greater foreign earnings than forecast by the JCT, including earnings eligible for the HIA's temporary deduction and earnings that did not qualify for the special tax incentives. As a result, the revenues gains during the term of the HIA were substantially greater than JCT had assumed. In addition, the IRS data showed that in the five years following the HIA, U.S. firms did not reduce their repatriations relative to the pre-HIA baseline, as JCT had assumed they would, but actually accelerated relative to the baseline. As a result, the revenue losses that JCT had assumed would occur once the HIA expired did not occur…..This analysis, based on all of the available data and other evidence, demonstrate that the JCT forecast of the revenue effects of Paul-Boxer is fundamentally flawed. The proposal would result in the injection of at least $1.45 trillion in additional resources for the U.S. economy, producing substantial revenue gains and economic benefits.”

It is our hope that this more accurate forecast of the economic and revenue effects of repatriated foreign source earnings of US multinationals will make the passage of a bipartisan, long term Highway Trust Fund bill more likely this year.