As a response to President-elect Donald Trump’s proposal to offer U.S. companies a one-time tax rate of 10% to repatriate their overseas cash, there have been many business experts who have stepped forward with concerns that “tax-holiday” will be of little consequence if the government doesn’t also move forward with a more favorable corporate tax structure. It’s important to remember Trump used possible repatriation as one of his campaign goals.
The analysts at Moody’s Investors Service took a look at the issue and said they believe it would only provide a temporary benefit to the U.S. economy as the biggest players would most certainly reject the offer if it came with any restrictions and an unchanged tax environment. For now, the five biggest names with stockpiled cash reserves include Apple, Microsoft, Google, Cisco and Oracle, which on a combined basis, are holding $505 billion in overseas cash reserves. This number represents an estimate 86% of their total cash, by year-end 2016.
To get a feel for what Trump could expect as a response from corporate America, the Moody’s people took a look at 2004, the last time a reparation offer was put on the table. At the time, an estimated 9,700 companies had material cash reserves parked overseas. Only 873 companies brought cash back to the U.S. at an estimated value of $362 billion.
Most of the companies that elected to not take advantage of the offer did so because of the corporate tax rates that were in place at the time and a number of restrictions that were placed on how the companies could use the repatriated cash.
It’s clear that for Trump’s plan to work, his administration will need to be sensitive to what the biggest companies are wanting in order to make the move. With upwards of $1.3 trillion on the line, the U.S. economy could get a significant boost if the “tax-holiday” is handles properly.