Because tax reform has them coming back to the U.S. by the hundreds of billions

So now you know what repatriated profits are

By —— Bio and Archives--January 21, 2018

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So now you know what repatriated profits are
Dan gave me credit for this the other day, but I’ll take some myself if that’s OK with you.

He remembers from his days as my syndicate editor that I was talking a decade ago about the need to repeal the tax on repatriated profits. It wasn’t a hot topic of conversation at the time. There weren’t a lot of pundits or politicians talking about it.

But business people knew what it was, and they knew how much it was holding back the U.S. economy’s growth potential.

Simply put, the tax on repatriated profits required that any company that earned money overseas had to pay the full 35 percent corporate tax rate if the company brought that capital back into the United States. The alternative to paying that 35 percent tax is to leave the money parked overseas and pay no further taxes on it.

What do you think they would do? Of course. They leave it overseas and the U.S. economy is deprived access to trillions worth of capital.

What the tax cut did was reduce the rate on existing overseas capital to 15.5 percent, while eliminating the tax on all capital earned overseas thereafter. And the repatriation of the capital has already begun, with Apple announcing last week it would bring back just about all of the $350 billion it’s been keeping out of the country. The Treasury will clean up nicely to the tune of $38 billion, but that’s not even the most important thing.

That amount of capital being infused into our economy is going to be like rocket fuel for economic growth. It can be used to create new jobs, build new facilities, develop new innovations and otherwise expand productivity. Plus: Because it was already Apple’s money, and they didn’t have to borrow it from a bank or raise it from investors, there are no additional costs associated with the acquisition of the capital.

They just bring it home.

It’s incredible to me that anyone doesn’t understand this, yet many do not. Taxes affect the decisions businesses make with their money. If you’re going to be socked with a tax penalty for something you do, you look for something else to do. No one wants to voluntarily give up cash if they don’t have to. Apple may be paying $38 billion on this repatriated money, but under the old system they would have paid nearly $90 billion! That’s why they didn’t bring it home then, and they are now.

Apple won’t be the last, either. Other U.S. companies will do the same with their overseas capital, and they’ll continue to bring it home in the future when they can do so with no tax penalty. This will be an enormous generator of growth for the U.S. economy. And if you’re worried about the government not collecting enough in taxes, relax. The resulting investments will spur plenty of taxable activity. The Treasury will be just fine.

The only losers will be the other countries that no longer get to keep our money. And, I guess, the people who just hate business and anything good that happens to them.

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