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What Donald and Hillary Have in Common

Corporate tax reform is one of the few things both major parties agree on. But what would companies actually do with the repatriated money?

The U.S. could be in for a windfall: The estimated $2 trillion that American companies are currently holding overseas may just be homeward bound, regardless of who wins the race.

It seems like whomever we elect as president, there will be some sort of tax repatriation holiday or reform from the current 35 percent federal corporate tax rate. Hillary Clinton and Donald Trump rarely agree on the issues, but both say there should be some sort of “business tax reform” (words from literature put out by Clinton’s campaign) that would bring at least some of that $2 trillion — which represents more than 10 percent of U.S. GDP — back home. Furthermore, the Speaker of the House, Republican Paul Ryan, and the likely next Senate majority leader, Democrat Chuck Schumer, both support lowering corporate taxes to spur the repatriation of all that cash. When asked what he might accomplish next session, Schumer told CNBC: “If you can get overseas money to come back here, even if it’s at a lower rate than the 35 percent it now comes back at, and you can use that money for a major constructive purpose such as infrastructure — if you did an infrastructure bank, for instance, you could get $100 billion in equity in the bank and get a trillion dollars of infrastructure.”

As Schumer suggests, Democrats want to use the taxes from repatriated money to fund a large infrastructure rebuilding program that would supposedly revitalize the American economy and put Americans back to work. But what would the repatriating companies actually do with their newly American cash? What would top-earning tech companies, which added nearly $69 billion to their international cash troves in 2014 alone, choose to do with this cash? One historical analogue suggests that, despite what legislators say, more money at home means more money for shareholders.

This isn’t the first time legislators have proposed lowering repatriation taxes on corporations to stimulate the economy. In 2004, under a Republican president, Congress passed the Homeland Investment Act, which allowed for a one-time tax holiday, enabling companies to bring overseas cash back at a rate of 5.25 percent, compared with the usual 35 percent. Congress did this in the hopes of creating new jobs, spurring new investments, and stimulating corporate spending on research and development.

However, according to a 2009 paper from the National Bureau of Economic Research, for every dollar of the nearly $300 billion repatriated during this tax holiday, 92 cents went to payouts for shareholders. This happened even though rules stated that companies could not use money repatriated during the tax holiday to raise dividends or repurchase shares. “Estimates imply that a $1 increase in repatriations was associated with a 79-cent increase in share repurchases and a 15-cent increase in dividends,” the report, which used confidential data from the Bureau of Economic Analysis, states.

Kristin Forbes, a co-author of the report and an MIT economics professor who was an adviser to George W. Bush from 2003 to 2005, toldThe New York Times: “Dell was a great example. They lobbied very hard for the tax holiday. They said part of the money would be brought back to build a new plant in Winston-Salem, N.C. They did bring back $4 billion, and spent $100 million on the plant, which they admitted would have been built anyway. About two months after that, they used $2 billion for a share buyback.”

This is, of course, not saying that companies violated regulations; as the authors of the report themselves state, cash is fungible, and these repatriated dollars allowed other cash to be freed up. And in some ways, this is understandable enough, as a company’s foremost responsibility is to serve its shareholders well. It is perhaps a shortcoming of the Homeland Investment Act to expect corporations to act in any other way.

In an election that has been at times dispiriting, it’s hard not to feel heartened by this iteration of tax repatriation reform talk among Washington folks on both sides of the aisle. But while those in the tech industry — myself included — might hope large multinationals like Google, IBM, and Apple would use the money they’d bring home to fund research internally and acquire new technologies, it would probably be foolhardy to bet on it.

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