Donald Trump had what some economists considered a good idea when he put in place a tax law designed to help allow companies to repatriate cash. Previously, when U.S. companies generated profits abroad, they paid taxes on those profits when they shifted the gains to their U.S. banks or holding companies. As a result, most companies left their profits abroad to enhance their profit margin. Trump’s idea was that if companies could move those profits back to the U.S., it would result in trillions of dollars entering the domestic economy. So far, that has not happened according to The Wall Street Journal.
While the policy seems logical and strong on paper, in practice it hasn’t worked out as effectively as Trump had hoped for. Trump estimated that somewhere in the range of $4-5 trillion would come flooding back into the U.S. He then said that money would be used for new investment in all forms of job and wealth creation. At this point, only $143 billion has been repatriated, and the bulk of that, about two-thirds per The Daily Beast, was on a move by Cisco, with a smaller secondary move by the drug manufacturer Gilead.
The amount of cash that has flowed back to the U.S. after Trump’s tax law overhaul is just 3.5 percent of what the he predicted. Are we supposed to act surprised? https://t.co/KXjS0a2XRB
— Public Citizen (@Public_Citizen) September 17, 2018
Market Watch refreshed the comments made by Trump at the time of the Repatriation Tax Law becoming effective.
“We expect to have in excess of $4 trillion brought back very shortly. Over $4 [trillion], but close to $5 trillion, will be brought back into our country. This is money that would never, ever be seen again by the workers and the people of our country.”
There are many possible reasons why the flood of cash repatriations Trump predicted never took place. One of the simplest factors is that for numerous international companies, not just U.S.-based, but anywhere, it is easier to move money around regionally than it is internationally, even with the speed of electronic banking available today. The way laws are structured in different nations and trade blocs makes having money “locally” the most expedient way to do business. Others have expressed that they feel a corporate responsibility to invest where they have business locations.
— Lydia O'Neal (@LydsONeal) September 17, 2018
The Fiscal Times also pointed out that there is more at play when it comes to deciding whether or not to repatriate foreign profits to the U.S. One of the biggest reasons major corporations are keeping their money abroad still is secrecy. They don’t want the U.S. government knowing the ins and outs of their full financial landscape. They want their private information to remain that way, and neither waiving taxes on currently earned foreign profits nor the current one-time tax to move back old profits for repatriated funds is changing their minds.
Another reason that the $4-5 trillion marker that Trump set wasn’t hit is because, as Axios reported, there really isn’t that much foreign-earned profits parked abroad right now to move. A review of the securities filings from 108 publicly traded companies shows only about $2.7 trillion in profits parked abroad, compared to the $2.4 trillion Richard Rubin found. Those companies account for about 90 percent of all foreign profits generated by U.S.-based companies.
It is absolutely possible that the real numbers are higher than what we found because companies have gotten more opaque about foreign cash.
If you are a large corporation wishing to report a repatriation, call me. https://t.co/d0C9kkvCGd
— Richard Rubin (@RichardRubinDC) September 17, 2018
According to Market Watch, companies such as Apple, GE, and Boston Scientific Corp. have stated they have no need to post profits to the U.S., and no plans to do so at any time in the future. While the changes to the law did bring some money back to the U.S., and more may follow in the coming years, right now it isn’t living up to the hype Trump pitched it at.