Martin Sandbu correctly observes for the Financial Times:
One analysis puts the amount stashed offshore by the 1,000 biggest US-listed companies at more than $2.6tn.
This, for sure, is an anomaly. But not for the reason most commonly believed. To listen to the
tax reform debate, the problem is that these are funds “trapped” abroad that could and would be invested in US economic activity if they were “untrapped”...
This is an error, in fact and in logic...
A moment’s thought about the accounting logic of “trapped profits” helps understand why this must be so. First, the foreign designation of the accumulated earnings in question only denotes the tax residence of the balance sheet on which they are recorded — not where the money is actually kept. Nothing stops the foreign subsidiaries of US companies placing the money in US assets. The CBPP report says that on the available (admittedly limited) evidence, most of the cash “trapped abroad” is invested in the US. (Why else are small, low-tax jurisdictions such as Luxembourg and the British Virgin Islands among the top sources of foreign direct investment into the US?) All that repatriation would change is on which balance sheet these assets are held.
Second, while even a simple accounting shift could, in principle, change how the money is invested — from bank accounts and safe government securities to productive capital, for instance — there are good reasons why this is not happening. And it is that US corporations (the US parent companies) are not cash-constrained. If they want to invest in productive capacity, they are flush with cheap financing, and any company with substantial foreign-held assets will never have a financing problem at home.
So a payout to shareholders is exactly what one would expect from repatriation: it is the one thing that is tricky to do without passing the funds through the parent company’s balance sheet.
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