$2.5 Trillion Dollars And What To Do With It.
$2.5 trillion is the amount of dollars currently being held overseas by American corporations. President-Elect Donald Trump -yes, it still feels weird to say it- has based a huge part of his campaign on this money being repatriated to create more jobs in the United States. He plans to get this done by proposing a tax holiday with a tax rate of 10% for money being returned to the United States. But will this measure have the impact he desires?
According to a survey by CNBC to the Global CFO Council 60% believe this holiday will happen in 2017 and 36% already have plans on what to do with this incoming cash. But CFOs are weary about this tax breaks since it might come with restrictions on what you can do with it. In 2004, the last time the government issued a tax break on offshore profits, it came with a prohibition on using the cash for stock buybacks. According to research some corporation found a way around this but what is evident is the fact that it had very little impact on job creation.
Among the respondents for the CNBC survey the main capital allocation priority for 2017 is strategic acquisitions with almost 30% claiming it to be the most important. Building construction and equipment purchasing came next with a 25% as did R&D. Stock buyback is a priority for only 2.6% of respondents and only 12% say they would actually use the cash for increasing workforce.
With this new influx of cash the M&A market will skyrocket and we’ll see more and more corporations adopting this strategy for faster growth. But there are only so many good deals out there the rest of the new cash will go to stock buybacks, even though it is not one of the highest priority it might be the best investment out there for most companies and the Market.
Once this cash makes its way to the shareholders it will create a huge cash flow for the economy and the need to find new investment opportunities and generating growth.
Partner at Heinsen Global Investment Firm