clear
Thursday November 23rd, 2017 3:22PM

Why tax plan might not put US firms' overseas cash to work

By The Associated Press

WASHINGTON (AP) — The House Republican tax bill is meant to send trillions in corporate profits overseas pouring back home and, in the process, give the U.S. economy a healthy boost.

It may be more likely to land with an economic thud and provide a windfall to tax attorneys scouring the Byzantine bill for tax breaks on behalf of corporate clients.

"Every tax lawyer in town is going to get a new car," says Martin Sullivan, chief economist for Tax Analysts and a former U.S. Treasury Department economist.

The bill is designed to solve a vexing problem: Many big U.S. companies earn fat profits overseas. But they don't want to return the money to the United States because they would have to pay the hefty 35 percent U.S. corporate tax. So an estimated $2.6 trillion remains stranded abroad.

"You don't have to pay U.S. tax as long as you leave it offshore," says Kimberly Clausing, an economist at Reed College. "But your shareholders get upset if you leave it there forever."

Enter the House Republican tax plan.

Besides reducing the U.S. corporate tax rate to 20 percent, the plan would let companies repatriate their existing overseas profits at much lower rates — 12 percent for profits that have been kept in cash and 5 percent for profits from investments that are hard to sell.

Once the bill took effect, most overseas profits could be returned to the United States tax-free. Some very high overseas profits would incur a U.S. tax of 10 percent.

"For a lot of these companies you are talking about tens of billions, or in the case of Apple, hundreds of billions of dollars," says Scott Kessler, analyst with CFRA Research, referring to untaxed profits overseas.

Apple has more than $230 billion overseas, Microsoft $124 billion, according to the Institute on Taxation and Economic Policy.

Returning those overseas profits to America, the Republicans say, would give the economy a healthy jolt as companies put their newly available cash to work.

But critics note that a similar one-time "tax holiday" on overseas profits generated little economic oomph 13 years ago. The 2004 American Jobs Creation Act temporarily cut taxes on repatriated profits to 5.25 percent from 35 percent. About 9,700 companies took advantage of the tax break, bringing back $312 billion.

Fifteen companies, led by Pfizer, Merck and Hewlett-Packard, accounted for 52 percent of the repatriated money.

A 2011 Congressional Research Service report found that the tax holiday "did not increase domestic investment or employment."

Instead of expanding operations or hiring, companies tended to use the money to buy back shares of their own stock — purchases that disproportionately benefit wealthy investors, who are less likely to spend any extra income.

"It has almost no payoff to the economy," says Adam Looney, senior fellow in economic studies at the Brookings Institution.

A Senate subcommittee report concluded, in fact, that 10 of the 15 companies that repatriated the most money actually cut jobs after the tax holiday. Pfizer slashed 10,000 jobs in 2005 and 2006, Merck 7,000 and Hewlett-Packard 14,500.

"The experience from the 2004 tax holiday suggests that most of this money will be distributed to shareholders, not invested in U.S. business assets," says Edward Kleinbard, professor at the University of Southern California's Gould School of Law.

Especially now, Kleinbard said:

"Interest rates are low, retained earnings are high and credit is available. Most firms thus do not need the repatriated money to fund worthwhile business investments in the U.S."

Kleinbard notes that the Republican bill leaves one thing conspicuously unchanged: "A U.S. multinational looking to build a factory to serve foreign customers and choosing between a U.S. and low-taxed foreign location will still have a big incentive to locate that business abroad."

If the plan goes through, and lawmakers don't limit how the companies can spend the money — requiring them to invest in the U.S., say, or create jobs here — CFRA's Kessler expects that a "substantial amount" is going to be allocated once more to stock buybacks and dividend payments.

Clausing at Reed College suggests that the U.S. economy doesn't need much help anyway.

Unemployment is at a 16-year low of 4.2 percent. Economic growth has come in at a healthy annual rate of 3 percent or better in each of the past two quarters. If the tax bill managed to heat the economy much more, the Federal Reserve might have to accelerate its pace of interest rate increases to cool things off.

That would make loans costlier for individuals and businesses and might slow the economy.

___

Barbara Ortutay in New York; Linda A. Johnson in Trenton, New Jersey; and Josh Boak in Washington contributed to this report.

___

Follow Paul Wiseman on Twitter at https://twitter.com/PaulWisemanAP

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, AP Online Headlines - Washington, AP Business, AP Business - Corporate News, AP Business - Economy, AP Business - Personal Finance
© Copyright 2017 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
The Latest: Catalonia loses most jobs in Spain in October
Catalonia has lost the highest number of jobs of Spain's 17 autonomous communities during the tumultuous past month, according to monthly statistics issued by Spain's Ministry of Employment and Social Security
4:37AM ( 13 minutes ago )
Spanish judge mulls arrest warrant for ex-Catalan leader
A Spanish judge is deliberating on whether to issue an international arrest warrant for Catalonia's ousted leader after she jailed nine former members of the region's separatist government a day earlier
4:19AM ( 30 minutes ago )
AP source: Mueller's probe draws in Democrat, Republican
AP source: Mueller's investigation looking at a Democratic lobbyist and a former GOP congressman for their involvement in an influence campaign on behalf of Ukrainian interests tied to Paul Manafort
3:52AM ( 57 minutes ago )
Associated Press (AP)
Female lawmakers allege harassment by colleagues in House
One current and three former female members of Congress tell The Associated Press they have been sexually harassed or subjected to hostile sexual comments by their male colleagues while serving in the House
3:25AM ( 1 hour ago )
Questions arise over departure of first woman to lead Fed
Fed Chair Janet Yellen makes history again at Fed, but for being denied a second term in spite of a growing economy and record stock market
3:15AM ( 1 hour ago )
Neighbors say alleged Walmart shooter was often angry, rude
Police have released little information about the suspect in a Colorado Walmart shooting that left three people dead, but neighbors described him as loner who sometimes cursed at them for minor transgressions and who often seemed angry
3:06AM ( 1 hour ago )
AP National News
US rate for gun deaths increases for second straight year
Government statistics show the nation's gun death rate up for the second straight year, following 15 years of no real change
12:09AM ( 4 hours ago )
Spain judge jails Catalan ministers, mulls leader's arrest
A Spanish judge jailed nine former members of Catalonia's separatist government and is considering a possible international arrest warrant for the region's ousted president
11:51PM ( 4 hours ago )
10 Things to Know for Friday
Among 10 Things to Know: House Republicans roll out tax code overhaul; Trump taps new chief for Federal Reserve; rising NFL star lost for season with knee injury.
11:48PM ( 5 hours ago )
AP Online National News
Asian markets muted as investors assess China data, Fed pick
Asian stocks drift in holiday-thinned trading as investors digest China data, Donald Trump's Fed chief pick and a U.S. tax cut plan
2:19AM ( 2 hours ago )
Stephen Curry puzzled over mention in GOP tax proposal
Golden State Warriors superstar Stephen Curry doesn't know how he became the only person named in the 429-page tax plan unveiled by House Republicans
2:09AM ( 2 hours ago )
The Latest: Trump tweets praise for GOP tax overhaul
President Donald Trump is praising the rollout of the GOP's tax reform plan Thursday
2:03AM ( 2 hours ago )
AP Business
Trump announces semiconductor company's return to US
A $100 billion semiconductor company based in Singapore will relocate to the United States
7:24PM ( 9 hours ago )
Starbucks to launch credit card, sell Tazo; sales disappoint
Starbucks announces deals to sell its Tazo tea brand to Unilever and launch a credit card with Chase.
6:58PM ( 9 hours ago )
The Latest: Tax plan provision stirs up abortion fight
A provision in the House Republican tax bill is igniting a battle over abortion
6:53PM ( 9 hours ago )
AP Business - Corporate News
Trump nominates Jerome Powell to be next Fed chairman
Trump nominates Fed board member Jerome Powell to be next Fed chairman
5:49PM ( 11 hours ago )
What's next for a Grand Canyon tram? Prospects are bleak
The chances of moving a project to build an aerial tram on a tribe's slice of the Grand Canyon forward appear bleak
5:29PM ( 11 hours ago )
The Latest: Catalan police step in to shield Spain officers
A crowd shouting slogans against the Spanish police has gathered outside a court building in Barcelona that was being guarded by officers from the national force
4:49PM ( 12 hours ago )
AP Business - Economy
Big GOP tax bill would cut rates _ but also popular breaks
House Republicans have unfurled their plan for the most extensive rewrite of the nation's tax code in three decades
6:26PM ( 10 hours ago )
The Latest: Trump kisses Republican tax plan
President Donald Trump has planted a kiss on a symbol of the House Republican tax plan
3:26PM ( 13 hours ago )
The Latest: Trump optimistic about tax cuts by end of year
President Donald Trump is calling the tax bill released Thursday by Congressional Republicans "a great bill," expressing optimism that it will be passed into law by the end of the year
2:28PM ( 14 hours ago )
AP Business - Personal Finance
The Latest: Catalonia loses most jobs in Spain in October
Catalonia has lost the highest number of jobs of Spain's 17 autonomous communities during the tumultuous past month, according to monthly statistics issued by Spain's Ministry of Employment and Social Security
4:37AM ( 13 minutes ago )
Spanish judge mulls arrest warrant for ex-Catalan leader
A Spanish judge is deliberating on whether to issue an international arrest warrant for Catalonia's ousted leader after she jailed nine former members of the region's separatist government a day earlier
4:19AM ( 31 minutes ago )
AP source: Mueller's probe draws in Democrat, Republican
AP source: Mueller's investigation looking at a Democratic lobbyist and a former GOP congressman for their involvement in an influence campaign on behalf of Ukrainian interests tied to Paul Manafort
3:52AM ( 58 minutes ago )
Week 10 preview: Bedlam at its best; Heisman RB rebounds
The first College Football Playoff rankings are out and seven games matching ranked teams this weekend have the potential to make the second rankings look much different
3:49AM ( 1 hour ago )
US considering returning NKorea to list of terror sponsors
As Trump prepares for Asia trip, US considers returning North Korea to list of state sponsors of terrorism
3:36AM ( 1 hour ago )