Much of the $2.5 Trillion in Corporate “Overseas Cash” Is Already in the U.S.

How can you miss what never leaves town?

by Gaius Publius

Coming out of the season of merry and bright we'll be coming into the full blast of news about "what Trump will do." One thing he's going to do is drastically lower taxes on the wealthy and on corporations. Another thing he'll do is declare a "tax holiday" on corporate profit that's (so-called) "held overseas", the (so-called) "unrepatriated" pile of cash that extremely favorable U.S. tax laws allow corporations to delay paying taxes on.

To be fair, Clinton would likely have done the same thing — declare her own version of a "tax holiday" — probably in return for private investment in a public-private "infrastructure bank." Will Trump's sweet deal to corporations take the same shape? It's possible.

For example, we find this, the possibility of a huge tax giveaway on "offshore profits" to Silicon Valley high-tech companies, via Americans for Tax Fairness (ATF):

Trump Tax Plan Would Let Tech Industry Permanently Dodge Hundreds of Billions in U.S. Taxes

High-tech corporations hold 29% of all untaxed offshore profits held by U.S. multinationals

WASHINGTON, D.C.—President-elect Donald Trump met with CEOs of some of the most profitable corporations in America today [December 14] and likely promised them a massive tax giveaway on their untaxed offshore profits, which would mean American families have to pick up their tab.

A spokesman for Trump said one of the topics of his meeting with high-tech executives would be “access to capital,” which likely referred to the huge tax break he plans to offer U.S. multinational corporations to bring home the untaxed profits they are holding offshore.

U.S.-based Fortune 500 companies have $2.5 trillion in profits booked offshore [pdf], mostly in tax havens, on which no U.S. taxes have been paid. Researchers calculate that these companies would owe more than $700 billion [pdf] in taxes if they were to pay what they owe.

Trump wants to cut the tax rate on profits held offshore from 35% to just 10%. That would cut their tax bill to just $150 billion, losing $550 billion in revenue [pdf] that could be used to fund education, infrastructure, healthcare, veterans’ benefits or other domestic priorities.

Trump’s guests today are all members of the technology and information sector. Technology corporations have 29% of all untaxed offshore profits reported to the U.S. Securities and Exchange Commission (Fig. 9). Just 10 corporations hold 40% of the total untaxed offshore profits, five of them attending today’s meeting with Trump: Apple, Microsoft, IBM, Google and Oracle.

As The Los Angeles Times reported, many of the executives invited to today’s meeting are “invested in Trump’s plan to enable corporations to move tens of billions of dollars currently sheltered in off-shore accounts back into the United States by slashing the taxes firms would owe on the money. The overhaul of the tax code Trump envisions would give Silicon Valley a financial boost.” ...

ATF smells a deal involving the high-tech portion of those trillions in "offshore" profits. So do I. (Note the estimate of the size of Fortune 500 "offshore" profits — $2.5 trillion.)

"Money doesn’t stop at borders. Tax accounting does."

But there's a "given" in this discussion — an unexamined assumption — that those trillions in corporate "overseas" profit is, in fact, held overseas. Wolf Richter is here to tells us the assumption is false. A great deal of that money, perhaps most or all, is already in the U.S.

Richter (my emphasis):

Come on Moody’s, Spare Us These Falsehoods: That $1.3 Trillion “Overseas Cash” Is Already in the US

Some falsehoods simply refuse to die. No matter how many times they get stabbed in the heart, and no matter who stabs them, they rise again in their full glory.

The falsehood that a vast amount of US corporate cash, including much of Apple’s $250 billion, is “locked away overseas” is one of them. We’ve known since May 2013 from the Senate subcommittee investigation and hearings into Apple’s tax-dodge practices that a big part of corporate “overseas cash” is actually invested in the US.

Now Moody’s Investor Services repeats the same falsehood and explicitly lobbies Congress to give our poor, multinational Corporate Titans with their hardscrabble businesses another tax break.

Here's the quote from Moody's itself:

Most of the cash that companies have is generated and being held overseas. Moody’s estimates that the amount of overseas cash will reach about $1.3 trillion, or 74% of total cash, in 2016. That’s up from an estimated $1.2 trillion, or 72% of total cash a year earlier.

Note that Moody's estimate of "$1.3 trillion" is considerably less than the AFT estimate of $2.5 trillion, but Moody's may have an interest in keeping its estimates conservative when it comes to companies that most of us would call "tax cheats."

Richter is having none of it, the claim that the most of the "overseas" money is actually overseas:

But here’s the thing. In May 2013, Apple got into a pickle because it had decided to fund its stock-buy-back and dividend program by taking on a record $17 billion in debt rather than “repatriating” part of its “offshore” cash and paying income taxes on it.

The Senate subcommittee investigation and hearings, chaired by Senator John McCain, showed that Apple had sheltered at least $74 billion from US income taxes between 2009 and 2012 by using a “complex web” of offshore mailbox companies. The investigation found untaxed “offshore” profits of $102 billion held by Irish subsidiaries – which Apple refused to “repatriate” in order to keep that income from being taxed in the US.

But according to the Senate report, Apple doesn’t have to repatriate that moolah because it’s already in the US. The Irish mailbox subsidiaries, on whose books this money is for tax purposes, transferred it to Apple’s bank accounts in New York. The money is managed by an Apple subsidiary in Reno, Nevada, and is invested in all kinds of assets in the US. Apple’s accountants in Austin, Texas, keep the books[.]

Money doesn’t stop at borders. Tax accounting does.

There's much more at the link, but you get the gist. A very large amount of that money is already in the U.S., invested in U.S. assets, held in U.S. banks, and is only nominally held by offshore "mailbox" subsidiaries, since those subsidiaries are free to invest it anywhere in the world, including in the U.S.

Will declaring a tax repatriation holiday on "offshore profits" create new investments in the U.S.?  It would seem that all of these companies, Apple for example, are already invested in the U.S. to whatever extent they want to be. So to answer the question, No.

Bottom line — When you hear Trump (or anyone) claim that "bringing the money back home" will mean "new investments" in the U.S., you're being lied to. You're also being treated like a fool, since Trump knows as well or better than anyone on the planet what hiding assets behind "holding companies" and post office addresses actually means.

It means you can do anything you want with your money, send it anywhere at any time in almost perfect secrecy.

 L'il Abner's goin' fishing for Saddam's WMDs. He's been told exactly where they are. He's also going to hunt for some of Apple's "offshore" money. Let's try not to join him (source).

These are just flat lies, that all "offshore" profits are really offshore. Believing them is like believing the Bush lies about WMDs in Iraq. Accept those stories if you like, but they'll call you a rube and a bumpkin if you do, then laugh as they dine on frogs' legs before heading to the bank. Just saying.

GP