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politics

Trump’s Tax Promise of Trillions Back to U.S. Fails to Materialize

Trump’s Tax Promise of Trillions Back to U.S. Fails to Materialize

  • Morgan Stanley estimates show repatriated cash levels falling
  • President said offshore profits would spur domestic investment
Donald Trump

Donald Trump

Photographer: Andrew Harrer/Bloomberg
Donald Trump
Photographer: Andrew Harrer/Bloomberg

The amount of offshore cash U.S. corporations have returned home so far this year is just a fraction of what President Donald Trump had promised.

A Morgan Stanley report released Thursday estimates companies brought back from $50 billion to $100 billion in the third quarter -- which would bring the total repatriated back to the U.S. to as little as $514 billion, based on previously released figures for the first and second quarters from the Commerce Department. The tax overhaul signed into law by Trump in December gave companies incentives to bring money back to the U.S. by offering a one-time low tax on repatriated profits.

Repatriated Cash Flows Less Freely

Key Insights

  • Even though companies are less restricted in moving their offshore profits under the U.S. tax overhaul, corporations, in aggregate, are choosing to keep earnings in their foreign subsidiaries, according to a team of Morgan Stanley analysts led by Todd Castagno.
  • Companies repatriated $294.9 billion in the first quarter and $169.5 billion in the second quarter, according to Commerce Department data.
  • “The sharp drop and trend trajectory is surprising -- and may require analysts and investors to rethink their near-term capital deployment and return expectations,” the note said.
  • Under the tax overhaul, companies pay the repatriation tax of 15.5 percent on cash and 8 percent on non-cash or illiquid assets whether or not it’s brought back onshore.
  • Trump has said, without specifying his source, that he expects more than $4 trillion to return to the U.S., which will help to create jobs and more investment.
  • Johnson & Johnson, EBay Inc., and Cigna Corp. are among companies that have disclosed in regulatory filings that they plan to keep their foreign profits offshore.
  • Onerous taxes imposed by foreign jurisdictions when the money leaves their borders is a disincentive for companies to move profits, according to the note.

Looking Ahead

  • The U.S. Commerce Department is scheduled to release the third quarter repatriation numbers Dec. 19.
  • Second quarter figures could also be revised in that same release.
  • The Internal Revenue Service is expected to issue final rules detailing when the repatriation tax applies and how to pay it.