Next month, President Trump will announce his tax plan. And if he does what he promised during the election campaign, he’s going to offer global companies a one-chance amnesty on taxes dodged by locating overseas. He’s going to let them repatriate that money with a one-off tax. It’s anticipated that this move will bring in more than two trillion dollars from companies keen to “make it good” with the Federal government, as well as repatriating much of their cash held overseas.
The hope within the Administration is that this money will lead to job creation, investment in R&D, capital expenditure products. Experts think this is doubtful. The last time an amnesty like this occurred, despite the law itself saying it couldn’t be used for dividends to shareholders, or buybacks (which leaves the people left holding stocks with higher dividends as the cash is split by fewer people), that’s exactly what happened.
According to Bloomberg: Corporate America last enjoyed a so-called repatriation holiday in 2004, when the U.S. government temporarily reduced the rate to induce companies to bring foreign earnings home. What happened next is instructive. Though the legislation expressly forbade companies from using the cash to buy back shares, various academic studies later showed that more than 90 percent of the repatriated profit was used for buybacks, dividends and executive compensation.
And at the end of the day, it’s still cheaper to have manufacturing based overseas for many, many products.
Asked what he would do with repatriated cash should the Trump administration slash taxes on foreign profits, Cisco Systems Inc. Chief Executive Officer Chuck Robbins said : “We do have various scenarios in terms of what we’d do but you can assume we’ll focus on the obvious ones — buy-backs, dividends and M&A activities.” According to Bloomberg, Gary Dickerson, CEO of chip equipment maker Applied Materials Inc., said much the same. The Top Five in order of overseas cash holdings last September were: Apple ($216 billion), Microsoft ($111 Billion), Cisco ($60 billion), Oracle Corp. ($51 billion) and Alphabet Inc. ($48 billion).
So, if you have stocks in your retirement portfolio, maybe it’s time to do some research and look out for well-respected companies with a lot of cash overseas. Look in the pharma, finance, high tech, and multi-national sectors for known US dividend producers.