Overseas cash stash


President Trump wants Corporate America to bring back its $2.6 trillion offshore cash hoard and put it to work back home.

Trump and House Republicans are eyeing a major tax reform overhaul this year.

A key feature might involve cutting taxes on companies’ accumulated offshore earnings to persuade CEOs to bring their overseas cash piles home.

 

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Cash Pile

Right now, companies have the option of deferring paying taxes on overseas income until the money is repatriated.

As a result, some $2.6 trillion in cash sits offshore, according to the US Congress’s Joint Committee on Taxation.

And many of the biggest cash hoarders are big US tech firms, now unhappy with Trump’s stance on immigration and work visas.

 

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Source: Financial Times

 

Stock Buybacks

In theory, bringing back that cash could spark an investment wave in new plants and power job growth.

Yet, more likely, some analysts suggest, is that CEOs will use repatriated funds to boost dividends and buy back stock.

In my opinion, that would be good news for investors, but not necessarily workers or the broader economy.

 

Job Cuts

That’s pretty much what transpired during the last tax holiday on foreign earnings back in 2004.

In fact, a US congressional report showed that the 15 companies that benefited the most from a 2004 tax break on overseas profits slashed 20,000-plus jobs on a net basis.

According to Goldman Sachs, US companies will buy back a record $780 billion in shares in 2017, versus $710 billion for traditional investments in plants and equipment.

 

Takeaway

In my view, there’s bipartisan support for tax reform this year and creating fresh incentives to bring back corporate cash from abroad.

Yet, if history is any judge, in my opinion, one should not expect a big investment boom.

Photo Credit: 401 (k) 2012 via Flickr Creative Commons

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Xavier Brenner
Xavier Brenner
Xavier Brenner has covered global market, business and economic trends for Interactive Brokers Asset Management since 2013. An experienced financial journalist, Brenner offers analysis and insights on the stories that matter to the discerning investor.