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STRIKE SIX: REPATRIATION
The Claim
Trillions of dollars will quickly find their way back to America as U.S. multinational enterprises bring their foreign profits home.
Donald Trump on December 16, 2017, at the White House: “We think $4 trillion is going to be flowing back into the country. That’s money that’s overseas that’s stuck there for years and years.”
Donald Trump on August 7, 2018 at a meeting with business leaders: “We expect to have in excess of $4 trillion brought back very shortly.” Actually, he revised, “close to $5 trillion.”
The Truth
Repatriations didn’t reach anywhere close to $4 trillion. Not even remotely close.
What is repatriation anyway? Good question. Most countries tax corporations only on economic activity that happens within their borders. This is called a territorial system.
However, before the Republican tax bill, the United States taxed all of the profits of U.S. multinational enterprises — even if the money was earned overseas — but only if the money was repatriated (or, brought home). As a result, most American multinational firms simply kept their profits abroad. This income was kept on corporate balance sheets and was deferred until the income made its way back to the American parent company.
The Republican tax bill gave corporations a break on the foreign profits they brought home to America and changed the way U.S. multinational companies are taxed going forward. The law shifted our system to a quasi-territorial system, and now profits are taxed only where they are earned.
To help U.S. multinational companies transition to this new system, the federal government gave companies a tax “holiday” on foreign earnings that were brought back to America. During this holiday, multinational companies paid a one-time tax on cash and assets held overseas, whether or not money was repatriated (this removed any incentive for companies to keep the cash overseas). They were allowed to spread out this one-time tax over eight years.
We're all for a territorial system because we believe it will ultimately increase our global competitiveness. But it was delusional to believe these changes would immediately cause floods and floods of dollars to rain down on America. That’s just not how it works in the real world.
According to The Wall Street Journal, although “U.S. companies more than quadrupled the amount of foreign earnings they sent home in 2018 following enactment of a tax-law overhaul in late 2017,” the “repatriations declined after an initial spike.”
The WSJ continues, “Companies sent $664.91 billion of their foreign earnings back to the U.S. in the form of dividend payments in 2018, up from $155.08 billion the year before. However, repatriations fell steadily through 2018 to $85.9 billion in the fourth quarter, from $100.74 billion in the third quarter, $183.58 billion in the second quarter and $294.69 billion in the first quarter.”
But even the money that did come back was not spent the way the Trump administration promised, and certainly did not land in the pockets of America’s “forgotten men and women.”