The official line from U.S.-based multinational corporations is that if they get a huge tax break, they’ll bring home the trillions of dollars in profits they’ve stashed overseas and use it to hire tons of Americans. (Nearly 3 million, says the U.S. Chamber of Commerce!)
But now that Donald Trump’s election means it might really happen, corporate executives are telling Wall Street analysts what they’ll actually use that money for: enriching their shareholders and buying other companies.
The Intercept’s examination of dozens of earnings calls and investor conference talks since Trump won the presidential election finds that many executives are telling analysts at large banks that they are eager to take the money to increase dividends and stock buybacks as well as snap up competitors. They demonstrate considerably less if any enthusiasm for going on a domestic hiring spree.
Many U.S. multinationals, especially in the technology and pharmaceutical industries, have long resisted bringing their overseas profits back to America — because if they did they’d have to pay taxes on them at the current corporate rate of 35 percent. Their accumulated untaxed foreign profits have now grown to a spectacular $2.5 trillion, an amount equal to about 70 percent of the federal government’s annual budget and 14 percent of the entire U.S. economy.
While running for president, Trump proudly proclaimed that he’d give those corporations a special 10 percent tax rate on that money — not, you understand, for an unpopular reason like making rich people richer, but because it would help regular Americans.
“The wealthy are going to create tremendous jobs. They’re going to expand their companies,” Trump asserted during the first presidential debate. “They’re going to bring $2.5 trillion back from overseas, … to be put to use on the inner cities and lots of other things, and it would be beautiful.” During the third debate he promised that “We’re going to start hiring people, we’re going to bring the $2.5 trillion that’s offshore back into the country. We are going to start the engine rolling again.”
What would companies do with all that money? Doug Holtz-Eakin, a prominent economist who advises multinationals, explained in 2013 that they’d “Invest, expand payrolls and create jobs. … A temporary tax holiday on foreign earnings could add up to $440 billion to the U.S. gross domestic product and create up to 3.5 million jobs.”
Cisco, the California-based IT giant, has $58 billion overseas and has long been one of the most outspoken corporate proponents of a tax holiday. Its previous CEO John Chambers claimed in 2010 that profit repatriation “could be used for creating jobs, investing in research, building plants, purchasing equipment, and other uses.”
But on a November 16 earnings call, Cisco’s CFO Kelly Kramer told securities analyst what the company would actually do with all that money. First it would make changes to its debt structure, and then “we would have a blend of actions we can certainly take with our dividend as well as our share buyback, as well as leading flexibility for us to be able to do M&A and strategic investments.”
Similarly, Hewlett Packard has $47 billion in foreign profits and is a member of the organization Lift America, which claims lightly-taxed profit repatriation will be fantastic for “job creation.” When asked in an earnings call whether HP would use a Trump repatriation tax cut “for a dividend, or to raise the buyback,” the company’s CFO answered “yes” and then extolled the company’s “aggressive” policy on share repurchases.
In an earnings call immediately after the election, Hubertus Muehlhaeuser, the CEO of the $2 billion Florida food service company Manitowoc, explained that “of course, we would like to use [it] for industry consolidation purposes” — i.e., buying other companies.
The next week Agilent, a $15 billion healthcare technology company holding $5 billion overseas, conducted its quarterly earnings call. Asked about a Trump tax holiday, Agilent CEO Mike McMullen explained they’d use the money “for U.S.-based M&A” — that is, mergers and acquisitions — and “situations where we’ve been using debt, such as our share repurchases.”
Experts made it clear they expect the same to happen at other companies. In a discussion at a New York conference hosted by Goldman Sachs about the “optimism” generated in the business world by Trump’s election, Mike Selfridge of First Republic Bank explained that the “almost $2.5 trillion of cash for corporations that have cash overseas, if that were to come back about 60 percent of that would go in the coffers of companies located within our urban coastal markets. … That would perhaps be positive for things like M&A, maybe some dividends or stock buybacks.” He did not mention anything about jobs with the possible exception of “wealth management opportunities.”
On several earnings calls, companies including Hewlett-Packard made nods to using some repatriated profits for “organic growth” or “making investments in the U.S.” Some executives, like Tech Data CEO Bob Dutkowsky, said he believed a tax holiday “would probably create jobs” in general. And the CEO of United Technologies, after describing the possibilities for mergers and dividends, did note that the company might “invest in jobs here in the U.S.” But what was missing from all of the post-election calls and conferences we examined was any sign that any executive feels their own corporation has a specific, pressing need to expand employment in the U.S. and can only do with their overseas money.
That shouldn’t be surprising. If multinationals saw strong job-creating investment opportunities, they could simply borrow money domestically, using their foreign funds as collateral. That’s essentially what Apple has recently done — although it was to pay out dividends to shareholders, not make investments.
But if corporations won’t ramp up hiring, would a Trump tax holiday at least goose the stock market? Possibly, but that does little for most Americans, since stock ownership is so highly concentrated at the top. The most probable outcome from profit repatriation is that the yawning chasm between the richest Americans and everyone else will just get wider.
Indeed, that’s exactly what happened the last time the U.S. had a corporate tax holiday in 2004, cutting the rate on repatriated profits to 5 percent. Companies lobbying for the so-called “Homeland Investment Act” claimed it would help them hire Americans and invest in research and development. Instead they used the money for stock buybacks and increased executive compensation, while the prime beneficiaries actually cut their U.S. payroll. (According to Bill Clinton, George W. Bush was “so mad that he signed the 5.75 percent repatriation bill [and] none of it was reinvested.”)