This is what bringing money back to the United States means. Under the old tax law companies often attributed legal control of profits to foreign subsidiaries, so that they could defer paying taxes on this money. However the money was often actually held in the United States, since Apple could tell the subsidiary to keep the money wherever it wanted.
For this reason the economic significance of bringing the money back to the United States is almost zero. The legal change of ownership is leading to the collection of taxes, but this is in lieu of the considerably larger tax liability that Apple faced under the old law.
It would have been helpful if these points were made more clearly in this NYT piece. It does usefully point out that we don't know the extent to which the expansion plans announced by Apple would have occurred even without the tax cut.Beat the Press
Apple Transfers $252 Billion in Citigroup Account from Irish Subsidiary to Parent Company
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C
I don't know how unique the experience is with Apple/Citi keeping the proceeds in USD, within US Banks or even in the US. Foreign subsidiaries likely use a range of banks, currency and locales depending on their business plans.
ReplyDelete“For this reason the economic significance of bringing the money back to the United States is almost zero”
ReplyDeleteHe is saying this because to him it won’t affect the “money supply”... it’s monetarist.... “loanable funds”, etc...
“For this reason the economic significance of bringing the money back to the United States is almost zero”
ReplyDeleteDepends.
Those funds are now pre-tax retained earnings.
Repatriating the funds will incur a tax burden in the period, which will lower the government fiscal balance. This will offset the revenue decreasing owing to the tax cut and it may accommodate more spending.
What happens with the balance of the funds depends on preferences to save or spend.
If the funds remain retained earnings, they are saving. The loanable funds theory would say that this increases the funds that are loanable for spending, which is a misunderstanding of how banking works.
If the funds are used for firm investment, it would be stimulative but there is no reason to think that repatriation itself would lead to firm investment, which is based on profitable opportunities.
IF the funds are distributed to shareholders, some will be spent and some saved. The funds saved will be used to invest financially, affecting financial markets.
Some will be used to fund stock buybacks, which will simply amount to switching portfolios around. The funds accruing from stock buybacks will likely go largely to other purchase of financial assets.
So, ballparking it, I don't see any big shift but it won't be zero either.
Right just slight bullish...
ReplyDeleteI think the greater positive impact will come from the disincentive for the multinationals to save offshore which comes from the new taxing the offshore earnings ..