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JPMorgan: Tax Holiday Would Pack 'Bigger Punch' Than Fed Policies

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REPATRIATION
AP

This post has been corrected.

Thomas Lee, chief equity strategist at JPMorgan, would really, really like a tax repatriation holiday.

Lee released a report this Monday in which he asserted that a repatriation holiday -- a one-off occasion where companies could bring overseas earnings into the U.S. at dramatically reduced taxation rates -- could carry “a bigger punch than QE.”

QE refers to quantitative easing, the Federal Reserve’s long-running program of asset purchases intended to stimulate the economy. The latest round of quantitative easing, known as QE2, came to an end on Thursday.

During QE2, the Fed spent eight months buying up $600 billion in medium-term Treasury securities. The strategy has received mixed reviews, especially as it comes to an end.

According to Lee's report, a tax repatriation holiday would do a comparable amount of good for markets and the economy in general.

Lee’s report estimated that companies could have as much as $1.4 trillion parked overseas, and that they might bring between $500 billion and $1 trillion into the U.S. if Congress passes a proposal allowing business to repatriate cash at a 5.25 percent tax rate, rather than the standard 35 percent.

“In our view, this carries greater positive implications for equities compared to QE,” Lee writes. “In other words, from a market’s perspective, this likely represents a substantial catalyst.”

However, Lee’s findings stand in marked contrast to another report issued by JPMorgan in May. That release, compiled by JPMorgan researchers, concluded that even if a tax holiday is passed, most of the money would likely be reinvested overseas. In other words, it “would not result in a flood of repatriation,” according to CNBC.

JPMorgan is far from the only major corporation to call for a repatriation holiday recently. In mid-June, advocates at a corporate conference in Washington, D.C. referred to the proposed repatriation holiday as “the next stimulus."

JPMorgan recently agreed to a $153.6 million settlement with the Securities and Exchange Commission regarding allegations that it misled investors about a mortgage securities transaction.

Correction: A previous version of this post mistakenly said the Federal Reserve bought long-term Treasuries. It also attributed the views expressed in the report to JPMorgan Chase as a whole.

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