At a speech today in Missouri designed to lay out four principles governing his approach to tax reform, Donald Trump came out swinging in favor of the notion that the government should make it easier for big multinational companies who’ve accumulated large sums of cash in foreign tax havens to bring that money back to the United States.

“My administration is embracing a new economic model,” Trump explained “It’s called, very simply, the American model.”

The basic idea, which comes in different flavors, is to let companies that have stashed profits in foreign tax havens get a kind of amnesty for past tax avoidance. Back during Barack Obama’s administration, there was a fair amount of buzz around the idea of doing repatriation, as a gimmicky way to pay for an infrastructure building push. Obama’s economic policy team always vigorously objected to this notion, and Harry Reid didn’t like it either. Still, there was considerable evidence that under a Hillary Clinton administration, with Reid gone, some kind of repatriation-for-infrastructure-spending swap would have been on the table as Clinton looked for a bipartisan legislative deal.

Clinton didn’t win the White House, of course, and with Republicans running the show in Washington, repatriation is likely to take a different form — a gimmicky tax cut that can also be made to “pay for” additional tax cuts.

On the merits, however, the policy is entirely backward. There’s no good reason to do a one-off repatriation holiday unless it’s in the context of a broader reform of international business taxation. And in the context of broader reform, repatriation ought to be done at a penalty rate rather than a discount one. In other words, change the system but then force corporations to pay higher-than-normal taxes on the assets they stashed abroad in the past.

Tax repatriation, explained

The core issue here is that many large and profitable multinational American companies currently have large amounts of financial assets held on the balance sheets of their foreign subsidiaries.

These resources are commonly referred to in the business press as “overseas cash,” though it is generally neither overseas nor cash. Companies have accumulated this overseas cash largely due to an interlocking series of tax policy quirks. A key goal of business lobbyists is to shift tax policy so that as much of that money as possible can be paid out to shareholders, while minimizing the taxes owed on it. The main elements of the status quo are as follows:

The United States, somewhat unusually, seeks to tax American companies on their global profits rather than merely their domestic profits.

In part because we have a global tax system, our rules governing how companies can account for profits as either domestic or foreign are generally quite lax.

Profits that are owned by the foreign subsidiary of an American company are not taxed by the American government until they are “repatriated” to the parent company.

The nexus of these three facts is that it’s convenient for American companies to set up subsidiaries in one or more low-tax foreign countries (Ireland is popular) and then engage in a lot of accounting shenanigans to maximize the quantity of global profits that are attributed to your tax shelter subsidiary. You could, for example, transfer ownership of critical intellectual property to an Irish subsidiary. An operating subsidiary in Germany would then pay the Irish subsidiary licensing fees to use the IP. Due to the high fees, the Germany subsidiary would end up with few profits despite large sales, but the Irish subsidiary would be super-profitable.

You would then pay taxes on those profits at a low rate to the Irish government while paying almost nothing to the Germans. Indeed, according to European Union regulators, the Irish government was involved in striking special side deals to give the biggest companies even more favorable treatment.

This then leaves you with a lot of money sitting on the books of your Irish subsidiary waiting to “come home” at some future date, when American tax policy becomes more favorable.

The repatriation holiday of 2004

Back in 2004, members of Congress and their friends on K Street cooked up a fun game to play with this foreign money.

They passed a law that said companies had a little period of time in which they would be allowed to repatriate money at a steeply discounted tax rate. From companies’ point of view, that was great, because it increased the practical value of cash stored on the balance sheet of their foreign subsidiaries. From Congress’s point of view, the policy had two virtues. One was that since the discount tax rate wasn’t zero, the policy shift technically scored as raising, rather than costing, money. The other was that, supposedly, companies were going to bring this money back from overseas and put it to work with useful business investments and R&D.

An important 2009 study by Dhammika Dharmapala, Kristin Forbes, and Fritz Foley concluded that this did not work.

“Repatriations did not lead to an increase in domestic investment, employment or R&D — even for the firms that lobbied for the tax holiday stating these intentions,” they write. “Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders.” A 2011 Congressional Research Service analysis reached the same conclusion, as did a 2014 investigation by the Senate’s Government Affairs Committee.

Indeed, if you understand the situation correctly, you can see that there is no reason why discount repatriation would boost investment. Contrary to the implications of the phrase “overseas cash,” it’s simply not the case that Apple has huge stacks of physical cash sitting around in an Irish storage locker à la Breaking Bad. Its “foreign cash” is managed by a Nevada-based investment subsidiary (Braeburn Capital), and it largely takes the form of short-term bonds — i.e., the money is loaned out and is available to others to invest.

In defense of policymakers’ judgment, the George W. Bush Council of Economic Advisers said and believed that the law would not accomplish what its sponsors said it would accomplish. Congressional Republicans passed it and Bush signed it anyway, generating an enormous windfall for shareholders, but it’s far from clear that they were actually confused.

The death and life of a gimmick

After the failure of the 2004 holiday, businesses learned the valuable lesson that the payoff from international tax shenanigans was high, and they redoubled their efforts to stash profits in tax shelters.

But over time, the putative rationale for the giveaway tended to shift. Over the course of Barack Obama’s second term, a number of bipartisan congressional coalitions tried to come together on the idea of doing a repatriation holiday and using the revenue it raises to pay for transportation infrastructure spending.

In the long run, of course, repatriation holidays cost revenue rather than raising it, by encouraging companies to do more tax avoidance. And in the short run, there was no need to “pay for” infrastructure spending at all — it could have been financed by borrowing to serve as fiscal stimulus at a time of low interest rates. Paying for new spending with a short-term tax gimmick that increased long-term deficits was the exact opposite of sound macroeconomic policy. But lobbyists loved the idea, since it combined a big tax windfall for corporate America with a big pot of money for government contractors and construction unions.

Two headwinds for the plan were the earnest opposition of the Obama White House, which regarded this as terrible policy, and Mitch McConnell’s view that it was better to hold repatriation on the back burner as a sweetener for a future comprehensive tax reform. It was widely believed in Washington that if Clinton became president, she would make the deal with Paul Ryan that Obama refused to make and McConnell would probably swallow it. But instead, Trump became president, and now the gimmick can return in McConnell’s preferred form — it’s a tax cut that, by raising short-term revenue, can be used to offset the cost of other tax cuts. Everyone who is rich wins!

Repatriation should be done at a penalty rate

Sound public policy would probably be to do the opposite of this.

Everyone agrees that America’s current approach to taxing international profits is broken. Republicans typically argue for a system that would simply abandon any effort to tax them. Democrats prefer efforts to tighten up the screws and actually collect more money, generally in exchange for a lower overall rate.

But whatever solution is picked, the right thing to do after it’s been chosen would be to force companies to immediately repatriate the vast majority of their foreign profits and then tax that repatriated money at a putative rate — 70, 80, 90, or even 100 percent.

A retroactively applied tax, after all, would have no impact on future incentives to earn or invest. And the new tax system going forward would be lowering marginal rates on future earnings, thus reducing the incentives for shenanigans. Retroactively collecting at a penalty rate would further increase the incentive to comply with the new tax code, raising some revenue and undoing some of the damage of the disastrous 2004 tax cut. But of course, that doesn’t produce any windfall gains for corporate America, its shareholders, or its lobbyist boosters. Consequently, every iteration of the repatriation scheme I’ve seen does the opposite.