It's a common argument in the debate over corporate taxes: If the top tax rate weren't so high, U.S. multinational companies would happily bring home the money they have parked offshore.
And doing so would lead to greater investment in the U.S. economy.
U.S. multinationals have as much as $1.8 trillion in what are called "permanently reinvested earnings" offshore. If it were brought back -- a process known as repatriation -- the money would be taxed at a 35% rate minus whatever tax a company already paid on it to a foreign government.
But it's a myth that all the money is "trapped" abroad, said tax expert Edward Kleinbard. And it's not clear just how much of a spur it would be to the economy if it were repatriated.
As it is, a significant portion of that $1.8 trillion is already at work in the United States albeit not necessarily in the best way for the economy, Kleinbard noted.
Here's why: Foreign subsidiaries of companies often put their unused earnings into U.S. bonds, stocks and bank deposits. That money, in essence, is helping to finance federal and corporate debt and to make bank loans to American businesses.
A 2011 study of 27 large U.S. companies, requested by Democratic Senator Carl Levin, found that on average 46% of foreign earnings (about $250 billion) was being kept in U.S. bank accounts or invested in American assets, such as bonds and mutual funds. About a third of the companies had at least 75% of their foreign earnings in U.S. assets, the study found.
For Washington, how to tax offshore cash is one of the thorny questions facing policymakers pushing corporate tax reform.
There's broad consensus that the corporate tax rate of 35% should be lowered -- although by how much is still a big sticking point.
And there is some bipartisan push for a form of repatriation tax relief. That is, an even lower tax rate on past foreign earnings.
Former Treasury Secretary Larry Summers, for instance, has proposed a repatriation rate of 15% for accumulated offshore earnings.
By contrast, House Ways and Means Committee Chairman Dave Camp has proposed a 5.25% rate for earnings accumulated before this year.
"The catch is that [companies] would pay that whether they repatriate the earnings or not," said Jeremy Scott, editor of Tax Notes.
A temporary 5.25% rate was also imposed in 2004 during a one-year repatriation holiday. While that did induce a surge of money coming back to U.S. shores, studies have shown it didn't produce the biggest economic bang for the buck.
"The large cash repatriations that followed from that tax holiday in net terms funded shareholder dividends and stock buy-backs, not structural investments in the U.S. real economy," Kleinbard said in testimony before Congress last month.
In other words, investors in the companies were the biggest winners.
For his part, Kleinbard hopes lawmakers set the repatriation rate high enough to help pay for the potential loss of revenue that would otherwise occur from cutting the corporate income tax rate on future earnings and other costs associated with tax reform.