Far and away the biggest complaint that Americans have with the tax system, poll after poll finds, is that big corporations don’t pay their fair share. So it’s more than a little startling that the tax bill Republicans are about to pass would not only slash the corporate tax rate across the board but also add a big incentive for companies to stash money overseas.

The bill would take currently untaxed profits of US companies being stored abroad — profits that would normally be taxed at a 35 percent rate upon being brought back to the US — and tax them at new ultra-low rates: 8 percent for profits invested in real estate and other hard assets abroad, and 15.5 percent for profits in cash and stock and other liquid assets.

This isn’t an exclusively Republican idea. Liberals like former Sen. Barbara Boxer (D-CA), President Obama, and Senate Democratic Leader Chuck Schumer have all endorsed proposals that would give companies that stashed money overseas a big tax break.

But it’s an incredibly bad idea regardless. The repatriation provision in the tax bill would effectively reward companies that kept profits abroad rather than pay the 35 percent US corporate tax rate on them. That doesn’t raise money — and, what’s more, it costs money in the long term by telling companies that storing profits overseas will be rewarded in the future.

That isn’t a theoretical objection. Congress did something very similar in 2004, offering companies a one-time “repatriation holiday” where they could bring back earnings and face a tax of only 5.25 percent, about a seventh of the normal 35 percent rate. The hope was that this money would then be invested in job-creating business activities in the US. But that’s not what happened: The top companies repatriating earnings actually shed jobs over the next few years, and the funds were mostly funneled to shareholders in the form of higher dividends and more stock buybacks. That helps wealthy stock owners, but not the overall economy.

As the saying goes, doing the same thing twice and expecting different results is the definition of insanity. And yet the tax bill set to pass Congress this week copies a policy from 2004 that we know failed.

How the repatriation tax break works

Roughly speaking, you can divide corporate tax systems into two categories: worldwide and territorial. In a territorial system, the kind used in most developed countries other than the US, the government only taxes corporations on their earnings in that country; so Canada taxes Tim Hortons on profits it earns in Canada at a tax rate of 15 percent, but not profits from its US restaurants.

A territorial system has the downside of encouraging companies to make profits look like they were earned overseas so they’re not taxed at home, especially if they can make the profits look like they came from a low-tax country.

So Tim Hortons could, for instance, have a subsidiary in Ireland (corporate tax rate: 12.5 percent) and say that subsidiary owns a patent necessary to make the company’s delicious doughnuts. Then the Canadian company could pay out royalties to use that patent to the Irish subsidiary, and set the royalties to equal the size of the company’s Canadian profits. Boom: Canadian Tim Hortons pays no taxes, and all the profits are relocated to Ireland, enjoying the country’s rock-bottom tax rate. This is called “transfer pricing,” and it’s an incredibly common form of corporate tax evasion. (This is just an example, by the way; please don’t sue me, Tim Hortons Corporation.)

In a worldwide corporate tax system, by contrast, corporations are taxed on their total worldwide earnings, whether those profits are made in the country where the corporation is headquartered and taxed or not. This reduces the risk of companies misclassifying income as being earned abroad (since income earned abroad is still taxed), but it can encourage companies to relocate to other countries, a move known as a corporate inversion.

The US currently has a stupid version of a worldwide system, in which global profits are taxed but not until they’re brought back and spent or invested in the US. That creates a big incentive to misclassify earnings as being earned overseas, and then to not bring them back to the US, since it’d then face a 35 percent tax. Congress’s Joint Committee on Taxation has estimated that US companies have about $2.6 trillion in untaxed earnings overseas.

The Republican tax plan shifts to a territorial system, largely exempting foreign earnings from tax, though it includes a number of complex provisions meant to prevent the kind of evasion that territorial systems encourage.

But exempting future foreign profits from tax leaves open the question of what to do with the $2.6 trillion in untaxed money already parked abroad.

The tax bill adopts an approach called “deemed repatriation.” Under deemed repatriation, all foreign profits are “deemed” to have been brought back already and are immediately taxed.

In theory, you could do a deemed repatriation at the 35 percent tax rate, to ensure the profits are still taxed fully, or even do a penalty rate, like 45 or 50 percent, to punish companies for not bringing the money back sooner.

The tax bill doesn’t do that. Instead, it taxes profits invested in liquid assets like stocks and bonds at 15.5 percent, and profits invested in harder-to-sell assets like real estate and equipment at 8 percent. Both of those rates are far, far below the statutory rate, meaning companies with overseas profits are effectively being rewarded for keeping them abroad.

We know that repatriation doesn’t work

The US tried something similar in 2004 with a “repatriation holiday” that gave companies the option of bringing foreign profits back to the US at a discounted tax rate. The 2004 holiday was different from the repatriation included in the Republican tax bill in a number of respects. It offered an even lower rate, and it was optional, rather than mandatory.

But the core premise — of giving companies with profits parked overseas a big discount on their tax rate — is the same. And the track record of the 2004 holiday is not exactly encouraging.

The 2004 law was written to require companies to use the funds they brought back to finance research and development, wage increases, and other productive or socially valuable endeavors. “The funds had to be used for ‘permitted investments,’ which included hiring US workers, US investment, research and development, and certain acquisitions,” the economists Dhammika Dharmapala, Fritz Foley, and Kristin Forbes explained in a paper evaluating the law's impact. “Certain uses, such as executive compensation, dividends, and stock redemptions, would disqualify repatriations from the holiday.”

The problem is that money is fungible. So if Apple had, for instance, already planned to hire 10,000 workers in the US at a total cost of $1 billion and spend $2 billion on R&D in the US in the year 2005, it could tell the government — accurately! — that it was repatriating $3 billion to hire and invest in the US. But that would free up $3 billion already in the budget for other purposes, including supposedly banned purposes like executive pay hikes, higher dividends, and stock buybacks.

And indeed, that’s the kind of thing that happened for the most part. “A $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders,” Dharmapala, Foley, and Forbes conclude. Other analyses, like this one by Harvard Law School’s Thomas Brennan, are more optimistic, but even Brennan concludes that the largest corporations only used 12 percent of the money they brought back on research and development or new investment. The rest went to buying up other companies and reducing debt (both allowed under the law) and paying back shareholders through stock buybacks and dividends (not allowed).

However you look at it, a quite small share of the money went to hiring new people or making new investments or conducting new research.

And this is intuitive if you think about it for a second. If Apple sees a profitable research or investment opportunity in the US in 2017, it’s not going to think to itself, “Let’s not do that thing that makes us money, because all our cash is stored overseas.” Apple will just borrow money at today’s rock-bottom interest rates and fund the investment that way. It’s a little weird for a company with $261 billion in cash, most of it overseas or otherwise tax-sheltered, to borrow money, but with its three-year interest rates at only 1.8 percent, borrowing is only slightly more costly than using money it already has in the bank.

So it’s not really a surprise that study after study, from the Congressional Research Service and the Senate Government Affairs Committee, has found the 2004 repatriation holiday was a bust.

The real cost is long-term

We know that low-tax repatriation, like that included in the Republican tax bill, doesn’t stimulate economic growth. But maybe that’s okay, right? The Joint Committee on Taxation has estimated that the repatriation raises $338.8 billion over 10 years by taxing all those trillions in overseas profits, with the proceeds heavily concentrated in the first year, 2018. That sounds pretty good!

But if you look at the JCT tables you'll notice that by 2027, this provision actually starts to lose money. Ironically, that’s because of the provision’s behavioral effects, effects that Republicans tend to tout when they imply economic growth.

If you’re a corporation and you’ve been stockpiling profits overseas to avoid US taxes, and then you get a special one-time tax break, that convinces you that stockpiling profits overseas is a great idea. Not only do you not face full US taxes, but sometimes you get a very special discount courtesy of Congress! The 2004 tax holiday effectively rewarded companies for keeping profits abroad.

It stands to reason that such a reward would encourage more of that behavior in the future, and that is exactly what happened. As Harvard Law's Brennan writes, “Since the holiday window, there has been a dramatic increase in the rate at which firms add to their stockpile of foreign earnings kept overseas. The long-term result has been an aggregate increase in new foreign earnings added to the overseas stockpile that is greater than the amount of funds repatriated pursuant to the holiday. From this perspective, it seems that the AJCA may have been a net failure in achieving the policy goal of returning foreign earnings to the United States."

That’s why, historically, the JCT has scored pure repatriation holidays as costing money, not raising it. The holidays encourage vastly more tax evasion going forward, which in turn reduces future revenue, more than offsetting the initial windfall from companies bringing the money back.

The Republican bill is different from the 2004 proposal, in that it pairs a repatriation holiday with a dramatic reduction in the corporate tax rate, from 35 to 21 percent. That brings the US tax rate closer to that of tax shelters like Ireland, and reduces the incentive companies have to play elaborate games to shift profits abroad. This in turn partially offsets the incentive repatriation creates for shifting profits abroad.

But over time, the perverse incentives of repatriation become more important, and by the late 2020s and 2030s, this provision is a pure revenue loser in addition to doing nothing to foster economic growth.