Is the cash coming home?

No doubt you've heard the likes of Apple, Microsoft and Google (3 of eight companies that represent 2/3 of the total) have stashed billions of dollars offshore principally to reduce their U.S. tax bills. So called repatriation of earnings. 

With recent changes in the U.S. tax code (overall reduction in the tax rate for repatriated earnings to 15.5% from previous 35%) , the hope is some of those dollars may be coming home.

Trump Republicans would have you believe these companies will invest in both hiring and automation. That remains to be seen and perhaps not in the first wave. 

As I understand it, companies like Apple and Microsoft will have to pay a one-time tax on income accumulated abroad at a tax rate lower than they would have had to pay previously. For example, Apple has recently acknowledged a tax liability of approximately $38B. 

Typically, multi-nationals park their cash in U.S treasuries and corporate bonds (debt instruments). Belief by the academics is when the cash comes home, and with the intention of goosing stock prices, they'll reward shareholders using the cash for stock buybacks and dividends. 

The size of the overseas stash is not entirely known and is estimated to be $3.1 Trillion (with a "T"). Naturally, this repatriation effort will take time. At a minimum to coincide with the maturity dates of their holdings. 

As I understand it, these companies have eight years to wind all of this down. 8 years is an eternity in financial markets and politics (still time to change their mind).

 

 

jsexton

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