Tax Policy Analyst
President Trump has urged “repatriating” — that is, bringing back to the United States — U.S. multinational corporations’ foreign profits as a way to “spur billions of dollars in new investments in struggling communities and throughout our nation.” But repatriating that cash would spur corporate investment and thereby grow the economy only if those corporations were currently cash constrained and couldn’t raise or borrow sufficient funds to make investments in the United States. And newly compiled data from ten multinational companies with the largest stocks of overseas earnings show that they are not.
Rather, these multinationals gave $170 billion to shareholders last year by paying out dividends and buying back large amounts of their stock in order to boost their stock price. With corporations’ cash on hand already exceeding profitable investment opportunities, they are likelier to use repatriated profits to boost dividends and buy back stock instead of investing more in the United States.
U.S.-based multinationals pay U.S. corporate tax only on the income they earn in the United States, so many use accounting maneuvers to report as much of their profits offshore as possible. U.S. multinationals have about $2.6 trillion in profits offshore, the Joint Committee on Taxation estimates (though Trump has cited unsubstantiated figures that are far higher).
The table below shows the ten companies with the largest stocks of overseas earnings in 2016 — those likely to repatriate the most in foreign cash under tax legislation that required or encouraged them to do so. The companies had $783 billion in offshore profits, which is more than 30 percent of all such profits that U.S. multinationals hold. Policymakers hope that repatriation would transform much of those funds into U.S. investment.
But, in their 2016 fiscal years, these ten companies spent $170 billion on dividends and share buybacks, which is what corporations do when they have more income than profitable investment opportunities. Warren Buffett, for example, defended stock buybacks last year by arguing that “American corporations and private investors are today awash in funds looking to be sensibly deployed. I’m not aware of any enticing project that in recent years has died for lack of capital.”
If these corporations now use a portion of their available income to buy back shares and increase dividends, they’d likely use an additional infusion of cash through the repatriation of foreign profits the same way. Indeed, repatriating foreign profits does not create new investment opportunities — it only increases the amount of cash that corporations have on hand.
Policymakers looking to repatriation as a way to generate U.S. investment have not learned the lesson from the 2004 repatriation holiday. Then, multinationals largely used the $300 billion in repatriated profits to buy back stock and increase dividends, independent studies conclude, despite Congress’ attempts to prohibit their use for those purposes. Firms not only failed to use the funds for U.S. investment and hiring, but many in fact laid off workers after the repatriation holiday.
|Ten companies with the largest stocks of offshore earnings in 2016||2016 stock of offshore earnings (billions of dollars)||Share buybacks and dividends paid in 2016 (billions of dollars)|
|Johnson & Johnson||66.2||17.6|
|Total among top ten||782.8||170.0|
Source: Audit Analytics and companies’ financial statements. Years refer to each company’s fiscal year, which in some cases differs from the calendar year.