The Wall Street journal explains Why Cash Returning From Overseas Isn’t Likely to Create Jobs—and Might Even Reduce Them.
Based on analyses of past programs to repatriate overseas corporate earnings, Wall Street analysts and tax experts expect companies would use the money for purposes such as buying back shares and mergers. Instead of adding jobs, they say, companies might cut them if they use their cash to buy rivals and then take out costs.
“There will be increased share repurchases, but limited impact on building new plants, real investment activity and employment,” said Dhammika Dharmapala, a University of Chicago law professor who has studied what U.S. companies have done with repatriated cash
Mr. Dharmapala co-authored a working paper for the National Bureau of Economic Research that found that after companies brought back cash during a tax holiday in 2004, they spent 79 cents of every dollar on share repurchases and 15 cents on dividends.
There was no evidence of an increase in domestic investment, according to the working paper.
Percentage Increases Where the Money Went
- Spending on mergers and acquisitions increased by 47%
- Buybacks rose by 37%
- Debt pay-downs rose by 13%
- Capital expenditures rose by 10%
- Research increased by 7%
The above percentages were according to a Credit Suisse HOLT analysis of how the 50 companies with the most earnings overseas at the time changed their spending.
The quoted paragraphs are according to the NBER.
Surprising Not
This is what I said yesterday: “Mergers, dividends, and buybacks will not create one job. In fact, mergers are likely to decrease jobs.”
Upset About the Bill?
If you believe as I do, this bill deserves to die, then please take action as discussed in Upset About the One-Sided Tax Bill? Here’s What to Do About It!
By the way, depending on exactly how the passthrough tax code was written, I may be one of the big beneficiaries of this bill. I simply cannot support it.
Mike “Mish” Shedlock
Unfortunately, I disagree. Stock repurchases put capital in the hands of investors to reinvest in new and better activities. Mergers frequently free up new capital for investment elsewhere. This is not a zero sum game. Free markets continually provide opportunities for new competition. The economy thrives on movement of capital to better investments, and those movements create new jobs and new technologies. The idea that everything is now “done,” and no new jobs will be created is preposterous. There are always new orchards to plant, houses to paint, airplanes to build, software to write. art to create; along with patching the old roads, repairing the bridges, replacing plumbing. If you want full employment, do away with the minimum wage, outlaw wage bargaining by unions, enforce the anti trust laws against large corporations, decrease meaningless regulations, cut welfare for the able bodied who refuse to work, decrease government intervention in the economy.
i agree, kidhorn, if they had a profitable idea, they would already invest in it. What I don’t understand is why Mish portrays dividends and buybacks as bad things. The two are alternative ways to do the same thing, transfer money into the hands of shareholders. How are these bad things? Once in the hands of the shareholders, then they can either invest the money, or use it for consumption. Therefore, my belief is that a corporate tax cut will lead to both increase private investment, and increased consumption.
No surprise. Any company with an idea that they thought would increase profits has already invested in it. There’s been a glut of money for the past decade.
Debt keeps people working, so just continue to follow N-1 staffing rules and push more workforce automation. After all, what are the employees going to do? Declare bankruptcy again? Walk away from their health insurance? No way! And why upgrade or introduce new products? No one will notice anyway and real upgrades cost a lot of money. Much easier to change the gingerbread on your products and move the stock price with buybacks. Today’s fashionable CEOs know that consumers aren’t going to get excited over a new gadget without an Apple logo anyway.
If there is demand, then production will follow. Without increased demand, why expand plant and equipment? Obviously, if companies come into “found money” they will lavish it on the executives through bonuses and share repurchases. What is so surprising about all of this? Meanwhile, home equity line interest will no longer be deductible under tax reform, and Fed rate increases will increase credit card rates, both of which will lower availability of funds to the lower classes and reduce their spending. The net effect should be a downtrend in the economy. Can I have my economics PhD now?
As far as I’m concerned they should eliminate ALL taxes, starve the government to death and make damned sure that every person able to work is WORKING. We are so damned worried that corporations might actually keep their money. We are so damned sure that it is OUR money and that economic JUSTICE demands it be returned…not to US but our wonderful generous well meaning government to be spread around. Why would we pretend that our government is benevolent and has ANY concern with OUR well being beyond that which flows back to them? If we want to end the massive and destructive corruption in this world, it is centered about one single entity ….government, and there is no reforming it, anymore that you can reform cancer to a beneficial organism. I have no care of any corporations taxes. What I care about is the absolute stench of corruption that has infiltrated EVERY aspect of our society. The simple fact that a huge portion of today’s wealth is centered around speculation. If you want JOBS, stop making the worlds number one industry wealth redistribution derived from speculation….the simple theft of wealth from those who produce by gamblers….no different that the gambling halls raking in the cash on Friday night. People making money from doing NOTHING are what is burning this economy to the ground, and confusing those who actually work for their living with those who trick them out of it with a shell game subsequently taxing ALL wealth equally, is death to the economy. Taxes are a disincentive to activity and no single activity is taxed more than WORK.
Given that we have record low unemployment and 95 million not in the workforce, who are we kidding? Fewer and fewer people WANT a job and business KNOWS this. This is happening for TWO reasons I believe. One is that humans respond to NEED, AND few feel the NEED for a job due to government policies that redistribute wealth and PAY them to NOT work.
I can’t think of a single thing that we need more production of. Especially anything that’s going to produce millions of decent paying jobs.
Seems highly likely history will be repeated. Human nature plus greed and fear.