2011-07-07
Large U.S. based multinationals have been lobbying for a repatriation holiday where offshore profits are brought back to the U.S. and only taxed at a rate of 5.25%, similar to the 2004-2005 repatriation holiday. Many argue that the repatriation of the offshore profits will stimulate the U.S. economy.
I propose a comparable benefit for individuals --- let’s call it the “Repatriation IRA.” Under the Repatriation IRA, individuals can contribute up to 75% of their taxable income each year into an IRA so that their taxable income is reduced by 75%. As a result, they are only subject to current income tax on 25% of their income, and the earnings in the Repatriation IRA are not taxed until distributed.
At the end of each seven year period, the individuals are given the option of withdrawing the funds from the Repatriation IRA at a tax rate of 5.25%. Individuals who do not elect to withdraw from their Repatriation IRA can continue to defer tax.
One of the major benefits of the Repatriation IRA is the massive stimulation to the U.S. economy in year seven, when many of the individuals withdraw from their Repatriation IRAs and have lots of cash to spend.