Farewell, Ireland: It looks like corporate America will finally bring that cash home.
For years, the likes of Apple Inc. and Microsoft Corp. have stashed billions of dollars offshore to slash their U.S. tax bills. Now, the tax-code rewrite could throw that into reverse.
The implications for the financial markets are huge. The great on-shoring could prompt multinationals -- which have parked much of their overseas profits in Treasuries and U.S. investment-grade corporate debt -- to lighten up on bonds and use the money to goose their stock prices. Think buybacks and dividends.
It’s hard to say how much money the companies might repatriate, but the size of their overseas stash is staggering. An estimated $3.1 trillion of corporate cash is now held offshore. Led by the tech giants, a handful of the biggest companies sit on over a half-trillion dollars in U.S. securities. In other words, they dwarf most mutual funds and hedge funds.
“There is going to be a significant unloading,” particularly of Treasuries, said Reuven Avi-Yonah, a professor who specializes in corporate and international taxation at the University of Michigan Law School. “The general consensus is that the best use of the funds is to distribute it out to shareholders.”
That conclusion runs counter to the long-held promises of the Trump administration and Republican lawmakers, who repeatedly suggested their tax rewrite would encourage U.S. companies to bring the money home to hire workers and invest in their businesses.
The $14.5 trillion Treasury market, of course, can absorb the selling pressure of even the largest corporate holders. There’s little to suggest multinationals will immediately liquidate their investments. Many analysts say companies, rather than selling, could just let their holdings gradually mature.
Yet even at the margin, a drop-off in demand could add to the government’s burgeoning funding costs. Not only are interest rates on the rise, but the most sweeping tax cuts in a generation, which could end up mostly benefiting shareholders, risk leaving the government with trillion-dollar shortfalls for years to come -- an expense that taxpayers would ultimately have to bear.
And since Treasury yields are the global lending benchmark, any upswing could also ripple through the real economy in the form of higher rates on everything from credit cards to mortgages. Since September, 10-year yields have climbed over a half-percentage point, hitting a high of 2.595 percent this month.
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