I found this article extremely interesting as it speaks to
the impact of our President’s new corporate tax reform on a global basis. “Another
mountain of money is being brought home to American shores following the new
tax law -- and much of it will end up in the pockets of investors” (Shane). Tech
company, Cisco said Wednesday it plans to repatriate $67 billion in foreign
profits in the coming months. The firm manufactures gear for computer networks and
claims it will pass on a significant portion of that cash to its shareholders
over the next two years through share buybacks and increasing dividends.
In total, Cisco investors are set for a payout of about $44
billion. It is the most recent large U.S. company to map out its plans to bring
home cash that has been stashed overseas long-term.
Previously, multinational corporations have been reluctant to
move their offshore cash back into the states because of the heavy taxes they
would have to pay on it. But the tax bill passed by Congress and signed into
law by President Trump in December offers firms a special lower tax rate on
funds being repatriated to the U.S.
These new laws also mean companies can no longer avoid paying
taxes on past international profits by holding their cash outside of the U.S.
They now must pay tax on the money whether they bring it back to the country or
not.
Supporters of the new tax reform had argued that giving
companies an incentive to bring the money home could boost the U.S. economy by
promoting hiring and investment. But critics said Main Street wouldn't feel the
effect because many companies would opt to reward shareholders with dividends
and stock buybacks. What do you think?
http://money.cnn.com/2018/02/15/technology/cisco-overseas-cash-tax-law/index.html
http://money.cnn.com/2018/02/15/technology/cisco-overseas-cash-tax-law/index.html
2 comments:
The repatriation of the massive reserves of money firms such as Cisco hold out of the country is a welcome externality of the Trump tax reforms. However, as you have observed, firms will be dividing huge portions of that money amongst its share holders, providing opponents further ammunition for their “this helps the rich” argument. Although it would be great to think that these firms would invest this money into its stakeholders, it is likely it will go toward bonuses and shareholder payouts, if history is infact indicative of future actions. Either way, the money is coming back to the United States which is a big plus. We should see, over the coming months, that M1 and M2 will drastically increase along with investment spending. This could raise inflation to the fed and stock markets dismay, making it further difficult for the monetary policy to hedge against inflation.
The truth is that only time will tell if making this tax reforms and all these tax breaks will stimulate the economy and how much is it actually going to affect investment. These firms like Cisco are bringing lots of money back into the country because it is not smart to keep it outside of the US since they are going to have to pay taxes regardless where they keep the money. We only need to see how they are going to use it because most likely all this money is going to the stockholders by paying dividends which will end up with people reinvesting them, but these create more inequality because while the rich are investing more, some social programs are going to get closed because the government cannot fund them anymore, the time will tell how this will affect the economy.
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