Trump fails to achieve his campaign promise

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.

Background

Donald Trump is the 45th and current president of the United States. Before entering politics, he was a businessman and television personality.

Trump entered the 2016 presidential race as a Republican and defeated sixteen opponents in the primaries. His campaign received extensive free media coverage. Commentators described his political positions as populist, protectionist, and nationalist.

Trump has made many false or misleading statements during his campaign and presidency. The statements have been documented by fact-checkers, and the media have widely described the phenomenon as unprecedented in American politics.

Trump formally announced his candidacy on June 16, 2015, with a campaign rally and speech at Trump Tower in New York City. In his speech, Trump drew attention to domestic issues such as illegal immigration, offshoring of American jobs, the U.S. national debt, and Islamic terrorism.

Analysis

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.

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.

Instead, companies have been ploughing 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.

Uncertainty about whether Democrats could upend the tax law in the coming years is making companies hesitant to overhaul their operations now.

Assessment

Our assessment is that this is not the first campaign promise President Trump has failed to achieve, and this maybe one of the most obscure elements of his campaign in 2016. We believe that through decades of operation, US business has established an efficient overseas network to hide their profits and we feel that President Trump will have to push through tough regulations (and reforms) if he wants to bring back the $ 4 trillion he promised. 

Image Courtesy: MICHAEL VADON (https://commons.wikimedia.org/wiki/File:Donald_Trump_Laconia_Rally,_Laconia,_NH_4_by_Michael_Vadon_July_16_2015_20.jpg), https://creativecommons.org/licenses/by-sa/4.0/legalcode