US multinationals bringing corporate cash home could provide a boost to the US economy. US multinationals commonly bank their overseas profits overseas. This allows them to fund foreign ventures without sending cash from home. It also allows them to avoid paying corporate taxes of 35% on income gained offshore. It should be noted, however, that offshore income has usually been taxed already in the jurisdiction where it was earned. Current estimates are that bringing corporate cash home will amount to an infusion of hundreds of billions of dollars into the US economy either in the form of taxed dividends or reinvestment in the USA. How does this translate into an investment opportunity today ? An cash infusion in the range that is possible with bringing corporate cash home could provide jobs without adding to the national debt, which is what stimulus plans unfortunately do.
Microsoft is said to have over $50 billion in offshore cash and Cisco has something in the $40 Billion range. Add up all of cash that US multinationals have offshore and we have what Illinois Senator Everett Dirksen said half a century ago, “A billion here and a billion there and pretty soon we are talking real money.” In this case, fortunately, we are talking real money that could create jobs and lift the economy instead of real money going into national debt. What has brought this to the fore is discussion of a corporate tax holiday or tax amnesty. This happened as recently as 2005 when bringing corporate cash home only incurred a 5% tax rate. News reports indicate that the Obama administration wants a rate of 10% to 15% and wants such a program tied to promises to create jobs with repatriated cash. How to invest in stock in this scenario would be to look for companies with lots of overseas cash and the incentive for bringing corporate cash home.
A simple solution to all of that cash is for a company to buy back stock. Another is to pay a large, one time dividend. The former solution raises stock prices over the longer term and the later solution gives investors a one time bump in dividend earnings. In either case dividend stocks with overseas assets could be profitable. The attractive, long term solution for a company bringing corporate cash home is for a company to reinvest the money in new plants, R&D, and marketing efforts, all of which would create jobs in the USA. However, here is the rub. All of that offshore corporate cash is there for a good reason. Many world economies are growing faster than that of the USA. Many nations are still cheaper places to manufacture products as well. If a company intends to build a new manufacturing plant in Indonesia, a new call center in India, or a distribution center on the Chinese mainland it seems to make sense to leave the money where it will be needed and not deal with transfer fees and Forex commissions to send money back to the USA and later send dollars to convert into Bhat, rupees, rubles, etc. again anyway. Deciding, or divining, just who will be bringing corporate cash home will probably be the question to answer before investing money in hopes of profiting from this scenario.