“We expect to have in excess of $4 trillion brought back very shortly,” he told a group of business leaders in August, and in all likelihood something “close to $5 trillion.”
The only problem is that Trump’s claim shouldn’t be true, and so far, it hasn’t been. The Wall Street Journal estimates that the nation’s biggest publicly traded companies have repatriated $143 billion this year, while the Federal Reserve puts the number at a slightly more than $300 billion. Whichever number is accurate, it’s 94 percent to 97 percent less than Trump predicted.
There’s a simple reason the Trump tax cuts haven’t inspired companies to move that much money to the United States: The money was already here. How is that possible when American companies were allegedly stashing $2.6 trillion overseas to avoid taxes?
The important thing to understand is that foreign profits were taxed when companies brought them back to the United States to put into their businesses but not when they brought them back to put into other things — which, of course, is exactly what cash-rich companies such as Apple did. Of the roughly $250 billion that the tech giant was supposedly holding overseas last year, about $208 billion was in U.S. Treasury bonds, corporate bonds, or Federal National Mortgage Association and Federal Home Loan Mortgage Corp. debt. And that’s pretty low, compared with Apple’s peers. The Brookings Institution estimates that the 15 American companies with the most cash on hand already held 95 percent of it within the United States even before the Trump tax cuts took effect.
The tax cuts aren’t likely to prompt companies to invest more in their own businesses, either. Again, this has already been happening — companies were using borrowed money rather than their overseas earnings to invest. This saved on taxes in two ways: Companies could deduct the interest they were paying on their borrowing, and if they could persuade Washington to give them another tax repatriation holiday, like the one in 2004, they would not owe Uncle Sam much on their foreign profits, either. This was more than worth the minimal amount they had to pay to borrow money in the first place. And so, they’ve been making the investments in their businesses without needing a tax break on their overseas earnings to do so.
Which is to say that as beneficial as the tax cuts may be for investors, they’re not significant for the U.S. economy. Under the new tax law, companies will just take the money they had been putting into U.S. Treasury and corporate bonds and use it to either pay down their debt, buy back their shares or pay out bigger dividends. But, in any case, the growth in American jobs and investment that is “supposed to follow” will “not occur.”
That is what the Senate Permanent Subcommittee on Investigations said when it looked at what happened after the 2004 tax repatriation holiday. In all, the 15 companies that “brought back” the most money to the United States back then cut their workforces and research and development spending. But they did increase their stock buybacks and boost executive pay. In fact, a group of researchers from the Massachusetts Institute of Technology, Harvard University and the University of Illinois found that for every $1 that was repatriated during that time, shareholder payouts went up 60 to 92 cents.
So although Shakespeare may not have been thinking about trickle-down economics when he wrote that past is prologue, it’s particularly apt here. The Fed, you see, hasn’t found any evidence that repatriation has made companies invest any more in their businesses right now, but there’s plenty of evidence that the repatriation has motivated them to buy back more stock. Buybacks, after all, are at a record high.
It turns out, then, that Trump left out a word when he said that he wants to put “America first.” What he really meant is that he wants to put corporate America first. What else would you call giving companies a tax cut that, if history is any guide, won’t help the U.S. economy at all other than to make wealthy investors even better off — and at a time when profits were already at all-time highs as a share of the economy?
I guess you could call it a fairly standard Republican policy. That just doesn’t have quite the same ring to it.