Trump Promised to Bring Back $4 Trillion in Offshore Cash. He Missed by $3.3 Trillion

(Bloomberg) -- Corporate America brought $664.9 billion of offshore profits back to the U.S. last year, falling short of the $4 trillion President Donald Trump said would return as a result of the 2017 tax overhaul.

Companies repatriated $85.9 billion in the fourth quarter of 2018, the lowest sum for the year and down from $100.7 billion the previous quarter, Commerce Department data showed Wednesday. Corporations brought back $579 billion in the first three quarters of 2018, upwardly revised from $571.3 billion in the prior report.

Corporations are bringing back more than they did in 2017, before the tax law was enacted, when U.S. firms repatriated $155.1 billion.

Companies kept much of their overseas profit offshore because a 35 percent tax kicked in only if they brought the cash back to the U.S. But the Republican tax law set a one-time 15.5 percent tax rate on cash and 8 percent on non-cash or illiquid assets, regardless of the country where the profits sat.

In touting the tax overhaul, Trump predicted that more than $4 trillion would return to the U.S., which he said would create jobs and spur investment. Investment banks and think tanks have estimated that U.S. corporations actually hold $1.5 trillion to $2.5 trillion in offshore cash.

International Trade

The repatriation figures were part of a quarterly report on the current-account deficit, which widened to $134.4 billion in the October-December period from $126.6 billion. The gap is considered the broadest measure of international trade because it includes income payments and government transfers.

It's unlikely that U.S. corporations will bring back all of the offshore profits they have, despite the tax law changes. Only about 54 percent of corporate offshore earnings are held in cash, according to a 2016 paper led by Jennifer Blouin, a researcher at the University of Pennsylvania. The remaining 46 percent are illiquid assets difficult that would be difficult, if not impossible, to repatriate without selling.

Any claims made about how repatriated cash would boost wages and investment in the U.S. are likely overblown, according to researchers at the University of Richmond and Claremont McKenna College.

“Policy changes have a relatively small impact on hiring and investment decisions if firms have relatively easy access to credit markets,” the researchers said in a 2018 paper.

Stock Buybacks

Instead, companies have been plowing the tax cut cash into stock buybacks. Earlier this month, data from Citigroup Inc. showed that companies in the S&P 500 repurchased more than $800 billion of shares last year, surpassing the amount they invested in new or upgraded equipment. That's the first time that buybacks have been larger than capital expenditures, despite a change in the tax law that give companies immediate write-offs if the buy machinery. Capex was slightly more than $700 billion, according to the Citigroup data.

Democratic politicians have blasted the Republican tax law for benefiting corporations and their investors rather than workers. House Ways and Means Committee Chairman Richard Neal began a congressional hearing on the tax law saying the middle class has been left behind.

“Investors are doing very well. Corporate CEOs have it great. Wealthy heirs couldn't be doing better,” Neal said in a prepared statement Wednesday. “Let's not pretend that stock market gains and corporate profits tell the whole story of today's economy.”

Uncertainty about whether Democrats could upend the tax law in the coming years is making companies hesitant to overhaul their operations now, said Lisa De Simone, an accounting professor at Stanford University.

“There is a lot of concern about doing some of the things intended by the law -- repatriating profits, bringing back intangible assets, moving significant operations to the U.S.,” she said. “Those changes are incredibly hard to undo.”

--With assistance from Jordan Yadoo.

To contact the reporters on this story: Laura Davison in Washington at ldavison4@bloomberg.net;Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editors responsible for this story: Wendy Benjaminson at wbenjaminson@bloomberg.net, ;Scott Lanman at slanman@bloomberg.net, Gregory Mott