Some
843 companies brought back $312 billion. Thanks To Tax Cuts,
Companies' Overseas Profits Now Flooding Back To U.S. 6/26/18, IBD.
Tax Cuts: They said it wouldn't happen, but
it did: The money companies stashed overseas to protect them from high
U.S. corporate tax rates is flooding back in, boosting growth, jobs and confidence in the economy. Thank the Trump tax
cuts.
All
told, the Bureau of Economic Analysis (BEA) reported, some $305.6 billion
returned to the U.S. from overseas accounts. That's a $1.2 trillion annual
rate, and far more than the $35 billion one year before.
The BEA's analysts explain why
this happened: "The large magnitudes (of inward capital flows) ... reflect
the repatriation of accumulated earnings by foreign affiliates of U.S.
multinational enterprises and their parent companies in the United States in
response to the 2017 Tax Cuts and Jobs Act."
In
short, the Trump tax cuts did it. American companies were commonly estimated
to have about $2.6 trillion parked in
overseas accounts as of 2017. So in the first three months of 2018 alone, some
12% of that overseas stash came back to the U.S. It's now available here for
companies to invest, pay out in dividends and bonuses, hire new workers, purchase
new
plants and equipment, or just buy back stock.
It's
a shot in the arm for the U.S. economy. Of course, you say. It's entirely
logical to suppose that by slashing the top corporate tax rate from 35% to 21% —
a 40% reduction — and by giving one-time breaks to those companies that
had piles of cash sitting overseas, money would flow back into the U.S. After
all, Trump's 21% tax rate is now lower than the current OECD average corporate
tax rate of 25%.
But
last year, when the tax cuts were still a topic of conversation, some in the
media seemed to have trouble with this idea. "GOP tax bill and overseas
profits: Beware the hype," ran a headline on the PolitiFact website.
"Why
the GOP tax plan to repatriate offshore profits may flop," said a CBS News
topper. "AP FACT CHECK: Trump and the mirage of overseas profits,"
yelled the AP's not-so-subtle headline.
These
and other critiques were of the same ilk, using a 2011
Congressional Research Service study to
show why the Trump tax cuts wouldn't work. That study looked at what happened
in 2004, when President Bush and congressional Republicans temporarily cut
taxes on repatriated profits to 5.25% from 35%.
At
the time, the idea was to return financial capital to the U.S. And it worked.
Some 843 companies brought back $312 billion. But, the AP found the cloud's
dark lining, noting "those companies tended to use the money to buy back
shares of their own stock, not to hire or expand operations." The CRS
report itself found that the tax break "did not increase domestic investment or
employment."
These
assertions need a little context, however.
First,
the 2004 profit-repatriation tax break was a one-time event. The Trump tax
cuts, in addition to giving companies a break for repatriating overseas
profits, cut corporate taxes overall. So the impact will be longer-lasting —
permanent, if the Congress makes it so, as it should.
Also,
recall that 2004 was a mere three years after the end of the worst stock-market
plunge since the Great Depression. Companies' shares were recovering, but many
were still beaten down. So buying their own shares, which bolsters a company's
financial solvency, looked like a smart move at the time.
And
also remember: Interest rates, as measured by the Fed funds rate,
were rising sharply back then. From a low of 0.94% at the start of 2004, rates
surged to just below 2% at the start of 2005 and over 4% by the start of 2006. That's a fourfold move in two years. Even
so, the U.S. unemployment rate during that period fell from 5.4% in 2004 to
4.9% in 2005 and 4.4% by 2006.
Today,
no doubt, these same critics would say the same thing. Despite rising interest
rates, job growth is more than healthy and key measures of unemployment are
close to 30-year lows. Incomes are rising, even as 6 million high-skilled jobs
can't be filled. Jobless claims are at all-time lows. It's the healthiest job
market in decades.
Yet
the befuddled media keep calling these bullish economic data
"unexpected." Well, these weren't "unexpected" by those who
said that tax cuts would work like a charm to boost growth.
In
the second quarter of this year, GDP growth is almost certain to exceed 3%,
again. The Blue Chip consensus of economists expect 3.5% growth, while the
Atlanta Fed's "GDPNow" estimate is at 4.7% currently.
This
happened only because President Trump slashed taxes, cut regulations and in
general pursued powerful supply-side stimulus that lifted the economy's ability
to produce goods and services.
For
the record, GDP growth never topped 3% in any year of Obama's administration.
We were told repeatedly by left-leaning economists and pundits that the days of
3% growth were over. We would have to trim our sails and rein in our
expectations for the future.
Donald
Trump wasn't listening. He still isn't. The Washington Examiner's Paul
Bedard reports Trump recently talked about 5% growth, saying, "You ain't seen nothing
yet."
Sure,
bad things can happen between now and the end of the year. There are shaky
economies overseas, including both China and Europe, made all the more
sensitive by President Trump's talk of trade tariffs.
After
two years of spectacular gains, stock market investors might head to the
sidelines for a while. And if the Fed panics and starts raising rates in an
anti-inflation frenzy, something it has done repeatedly in the past, it might
once again bring down the economy.
Even
so, thanks to the tax cuts, literally hundreds of companies have handed out
bonuses, raised base pay, and created new benefits for workers. The money that
is flowing back into the U.S. is part of that success, creating jobs and income
for American workers. Those who say otherwise are, once again, wrong.
Norb Leahy, Dunwoody
GA Tea Party Leader
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