Analysis

Luring offshore corporate cash to America

Will the new tax law inspire U.S. corporations to repatriate their "vast stash" of overseas cash?

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For years, companies called on Washington to lower corporate taxes so they could bring home their "vast stash" of overseas cash, said Larry Light at CBS News​. U.S. corporations have an estimated $2.6 trillion parked abroad, and they've long argued that the 35 percent corporate tax rate dissuaded them from reinvesting it in the U.S. Republicans in Congress heard those concerns — and then some. Not only does the tax overhaul passed last month lower the corporate tax rate to 21 percent, it also offers companies "a particularly sweet deal" on repatriated cash: a "onetime" tax of 15.5 percent on liquid assets brought home and a tax of just 8 percent if the money is invested in real estate. Any future foreign-generated cash will be taxed at 10 percent. The Trump administration says this strategy will bring hundreds of billions of dollars home, "boosting U.S. economic growth and jobs." But a recent precedent "isn't inspiring." In 2004, when the U.S. offered a 5.25 percent tax holiday on foreign profits, companies brought home more than $300 billion, but delivered "very few jobs." Ten of the 15 largest corporate repatriators actually cut positions. The majority of the cash "went to mergers, stock buybacks, and dividends."

That may not be such a bad thing, said Lydia DePillis at CNN​. Even if the corporate tax cut "channels more money into the hands of investors," conservatives argue, those gains could then be reinvested in other businesses that "need capital to expand or develop new products." Companies will be motivated to invest more, because tax cuts amplify the return on capital, "thus increasing the bang for an investor's buck." The tax overhaul also changes the overseas-profit calculus, said Douglas MacMillan at The Wall Street Journal. Firms such as Microsoft and Apple have "saved billions" by holding software rights and patents in low-tax havens such as Ireland and Singapore. Now that their foreign earnings will automatically face a 10 percent tax, it "removes some of the benefit" from the companies' offshore facilities. Whether that will be enough for them to shift holdings and operations to the U.S. "is less clear."

Actually, the new tax law could "increase incentives for companies to employ tax havens," said Tim Fernholz at Quartz. Amid the "hastily written new rules" is "a loophole" that effectively allows multinationals to avoid even the new 10 percent tax on overseas profits if they "invest in factories and routine operations" abroad. That could mean "more jobs headed out of the U.S." CEOs see the tax overhaul for what it is: "a giant permission slip for shipping profits overseas," said Dylan Matthews at Vox. After all, if your company has been stockpiling profits to avoid U.S. taxes "and then you get a special one-time tax break, that convinces you that stockpiling profits overseas is a great idea." Offering a tax holiday didn't work for U.S. workers in 2004. "As the saying goes, doing the same thing twice and expecting different results is the definition of insanity."

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