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FX comment: we hear HIA could be here again

This is half rumour and half conjecture but more than once this week we have heard it mentioned as a possibility that the US might revisit the idea of a tax amnesty on US corporations’ foreign earnings alongside the mooted corporation tax reduction. Normally, unrepatriated earnings are not taxed by the US authorities but Geithner’s comment that “We don’t want the tax code creating incentives to shift investment outside the United States” might indicate that might change. It is not inconceivable that a tax amnesty, wiping the slate clean, would be a precursor to the introduction of tax on all US corporate earnings.

Such a step would naturally lead to dollar buying, as it did when last implemented (as the Homeland Investment Act) in 2005 and might defuse some of the criticism that the US is following a deliberate policy of weakening its currency. Not so certain is the argument that earnings repatriation would be directly invested domestically. A study published last year showed that most of the money fed straight into share dividends.

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