Taking a Bite Out of Apple's Cash

5/1/2017

According to the Wall Street Journal, Apple Inc. is expected to report having $250 billion of cash and more than 90% of it is located outside of the United States. This means that Apple has more money located in foreign countries than Britain and Canada combined. Apple has more cash than the total market value of Walmart and Proctor and Gamble. It has doubled its cash stockpile in the last four and a half years.

Apple’s ability to generate such a cash hoard is largely due to its hugely successful products. Its desire to retain cash is in part due to its near bankruptcy experience in the 1990’s. Equally important to Apple’s cash retention is the U.S. tax code. Cash repatriated to the United States is subject to a 35% tax. Tim Cook, Apple Chief Executive, was quoted in the article saying Apple was “eager to bring cash home if tax changes enabled it.” Apple’s Chief Financial Officer Luca Maestri indicated that tax changes could would provide “flexibility to do more capital returns. In 2012, Cook began a $200 billion stock buyback program.

News of Apple’s cash position surfaced at a time when the Trump Administration has reportedly proposed, for a limited time, a special tax of 9% on repatriated cash. This proposed tax discount is the subject of much political debate. Apple would pay a lower rate than most Americans pay. This does not sit well with Democrats. Republicans argue that the cash could be used for hiring U.S. workers and purchasing equipment. It would stimulate the U.S. economy, they argue. Democrats counter that Apple and other companies would use cash to pay dividends and buy back stock. They argue this favors the rich and is not productive.

What do you think? Should the U.S. tax repatriated cash at the rate of 9% for a limited time? Why or why not?

16 Comments

Bryce Brotherton

5/5/2017 10:52:40 am

I do not think the US should repatriate cash at the rate of 9% because we could possibly see a repeat of what happened in 2004 with large companies during the Bush administration. Bush’s administration also believed that the influx of repatriation funds would be invested in U.S. infrastructure, but companies ended up using most of the money for stock buybacks and paying dividends. While Trump’s tax of 9% is larger than Bush’s 5.25%, it is still significantly less than the normal U.S. rate of 35%.

If Apple Inc. were to repatriate $250 billion of their cash at 9%, they would net $227.5 billion, leaving them with immense amounts of cash to buy back their stock and pay dividends. While this is extremely beneficial for Apple Inc. because they would have an increase in capital gains due to an increase in their value after the stock buy backs, this would not be beneficial for the U.S. economy as whole.

Tina DeLuca

5/5/2017 04:50:27 pm

I say why not lower the tax rate if it brings more money back into our country from overseas. In December of 2016, Strategas Research Partners said that companies that repatriated the largest percentage of their overseas cash quadrupled the S&P 500 performance in the year after the 2004 repat tax holiday. I would think that would far outweigh the loss of the 35% tax rate. (Kim, 2017)
This tax break is a “one-time” cut in the repatriation tax and could potentially effect over $2.6 trillion dollars in overseas funds (Becker, A. & Gibson, G., 2017) Trump has a hurdle to get this passed in the senate. The democrats are going to look at this as Trump protecting big business. If he can show them that the funds can be used for infrastructure, he will have a much better sell.
But nothing happens quickly in Washington. This will take a long time to enact. Bankrate.com’s Chief financial analyst Greg McBride said “wake me up when something actually gets signed into law.” (Becker, A. & Gibson, G., 2017)

Preston Amerman

5/7/2017 11:51:23 am

I can't see why this could be a bad thing. As it stands, Apple is not interested in repatriating their cash because the current tax rate is 35%. And if Trump's temporary tax cut to 9% or something close to that agreed to by both party’s is not passed, the money stays put. Americans gain nothing.
So, I say, regardless of what Apple plans to do with the money, and let’s face it, anything is mere speculation at this point, 9% tax collection is something, a lot of something especially if other company’s follow suit. That is a lot of tax dollars collected by our government whereas right now, it is zero…
We gain nothing if nothing is done. Why not see what happens. Regardless of what anybody thinks, the idea of repatriation is to get the money back into the U.S. economy, and this accomplishes just that.
“Offshore corporate profits that come back should be invested by the company that brings them back. If the company brings the money back and pays it out to stockholders what happens next? Does that money disappear from the American economy? Disappear in a puff of capitalist and no doubt neoliberal smoke? Not at all--those stockholders can either spend or invest that money. If they spend it that raises demand and according to many that grows the economy. If they invest it then it's invested in creating jobs, isn't it?” (Worstall, 2017)

Worstall, T. (2017, January 2). The 2004 Corporate Repatriation Tax Amnesty Worked - No Reason Why Trump's Repeat Won't. Retrieved May 7, 2017, from https://www.forbes.com/sites/timworstall/2017/01/02/the-2004-corporate-repatriation-tax-amnesty-worked-no-reason-why-trumps-repeat-wont/#6faebde04a31

Maria O'Donnell link

5/7/2017 06:37:49 pm

In my opinion, U.S. should tax repatriated cash at the rate of 9% for a limited time. It is a large incentive for companies to want to repatriate funds back home and help strengthen their balance sheets. Although, a better solution to encourage companies to keep their funds in the U.S. would be to simplify the tax system and propose a reasonable corporate tax rate that would alter incentives for U.S. companies to get involved in international commerce. Offering a limited time 9% tax rate reduction sounds great, but it may or may not have a significant impact on our economy, as we have learned from the 2004 corporate tax holiday.

In 2004, former President Bush was hoping that the repatriated funds would be invested on infrastructure and creation of jobs. However, his expectations fell short when companies opted to use the funds for buybacks and to pay dividends. Of course, dividends are good for the investors but it was not the intended goal. Today, President Trump is suggesting a larger corporate tax holiday, nearly double the 5.25% tax imposed in 2004. This proposal will certainly make it more appealing for companies to want to take advantage of the opportunity to repatriate funds back home, which cannot be all bad.

Heather Hernandez

5/8/2017 09:09:36 pm

Apple Inc. (AAPL), General Electric Company (GE), Microsoft Corporation (MSFT) will benefit from repatriation, technology firms prefers to shift their income to overseas markets. Operating in foreign countries assists these firms to avoid tax because they rely on intellectual property. According to McCullum, implementation will save Apple Inc. The corporate tax paid. Under the normal tax rate of 35% Apple is supposed to pay $75.6 billion, but with the firm will pay $21.6 billion, therefore the main beneficiaries of the program are the firm shareholders (McCullum, 2017). The government will lose revenue from repatriation; the firm will pay $54 billion less corporate tax. Shareholders will save $10.14 per share from this policy. The firm will not create any significant jobs in US from the overseas earnings because the funds will be used as a stock repurchase program. The firm is using some of the fund in stock repurchase rather than making new investments to create new jobs. The jobs created will be insignificant compared to the revenue lost from the repatriation.

According to Marr and Huang (2014), a tax holiday issued by the government in 2004 did not create the jobs as promised and will do no good to the economy. Large firms are the major beneficiaries of the repatriated fund. In 2004, many American multinationals laid off large number of US employees even after enjoying multi-billion-dollar from overseas (Marr &Huang, 2014). The firms used most of the funds to repurchase their stock. Therefore, the taxing the repatriated cash at 9% will do more harm to the economy compared to normal taxation at 35%. There will be a deficit in the budget without any improvement in job creation. The government should charge the normal corporate tax at 35% in order to finance the budget, it would be better for the government to try and create jobs from the tax collected that leaves the responsibility to Apple Inc. The tax holiday will give Apple Inc. a large tax break without any significant effect to the US economy. Tax holidays favors the rich, the past tax holiday never give out any positive results to the economy. The firm should follow a dividend reinvestment plan in order to create the required jobs from the fund. Without a dividend reinvestment plan the firm should be charged the normal corporate tax at 35% to finance the budget.

References

Marr, C., & Huang, C. (2015, June 10). Repatriation Tax Holiday Would Lose Revenue And Is a Proven Policy Failure. Retrieved May 08, 2017, from http://www.cbpp.org/research/repatriation-tax-holiday-would-lose-revenue-and-is-a-proven-policy-failure

Mickle, T. (2017, April 30). Apple's Cash Hoard Set to Top $250 Billion. Retrieved May 08, 2017, from https://www.wsj.com/articles/apples-250-billion-cash-pile-enlivens-hopes-fuels-expectations-1493566748

These 3 Companies Will Benefit from Trump's Repatriation Tax Reform: Apple Inc. (AAPL), General Electric Company (GE), Microsoft Corporation (MSFT). (2017, February 14). Retrieved May 08, 2017, from https://www.smarteranalyst.com/2017/02/14/3-companies-will-benefit-trumps-repatriation-tax-reform-apple-inc-aapl-general-electric-company-ge-microsoft-corporation-msft/

Milissa Plescia

5/8/2017 10:26:04 pm

Doing anything for a “limited time” urges people to take advantage, but the question is, will it urge companies to take advantage? Corporate America does not act on impulse quite as quickly as the American consumer.

As the media suggests, offering a discounted rate to repatriate cash doesn’t work the way it should. For every $1 brought back to the US, shareholder payouts increased $0.60 to $0.92 cents according to a 2010 study by Harvard University, MIT and the University of Chicago. They reported that buybacks alone increased by $0.79 (Fortune.com).

In 2004, companies were offered a discounted rate but with the condition that the money be specifically earmarked for job creation. This limited companies and provided the fuel for the media to say that it didn’t work in the past and so it won’t work now. (Forbes.com)

I think the US should allow the limited discount period. If the money is repatriated and used for dividends it can help benefit small investors, pension funds, retirees, and those participating in investment funds holding corporate equities like Apple. Those dividends can increase the value of the portfolio, provided they are reinvested.

Residual repatriated money not used for dividends can then be used for capital improvements which, in the long term increases the need for trades people for business expansion, training for employees if new equipment is purchased or corporate growth to other states or areas.

Without the discount, corporations will leave the money overseas. Without repatriating money, the money remains outside the US and only benefits those countries holding the money. There is no benefit to US economy.

https://www.forbes.com/sites/investor/2016/10/03/repatriating-profits-wont-create-jobs/#9ac284721d85

http://fortune.com/2016/11/24/donald-trump-repatriation-tax-plan-jobs/

Melissa Perez

5/9/2017 12:05:43 am

Although a 9% U.S tax repatriated cash rate would sound like a good idea for a limited time only, I believe it is not a good idea. Cutting taxes is mainly a good thing only if it is done the right way to achieve its true purpose results. Back in 2004, businesses had taken advantage of a repatriation holiday and used the cash to pay dividends to shareholders, buy back shares, and acquire other businesses. Dividends do not increase investments and stock buy-backs only raise stock prices if the shares are undervalued. This still does not encourage investment to the U.S or job growth. The incentive again is for the cash to be used for hiring U.S workers and purchasing equipment. Having the cash on hand and ready access to capital in credit markets at such a reasonable rate at 9% would only become beneficial to larger companies like Apple Inc. It will be the middle and lower class who would suffer the most economically if we lower the tax rate again. Another tax repatriated cash rate would have the same impact due to the fact that businesses are again not cash restrained. If businesses do not have enough cash or not use it for fund investments, credit markets will continue to operate well and lower interest rates. Even if Apple Inc. wanted to invest right now at a tax rate of 35%, Apple will always have access to capital in doing so. It is the House and Senates duty to reconcile the different budgets. If we did not allow do become distracted from the goal of helping our economy and had laws specifically stating that businesses could only repatriated funds for the purpose of other investments, job creation, etc. we may be able to successfully find stability financially to help our U.S economy.

Donna Perluke

5/9/2017 08:53:33 am

Yes, I do think the tax repatriated cash should be for a limited time at the rate of 9%. My first thought is we don’t know how well it will work, we should keep in mind that this money belongs to Apple. Politicians are also concerned that Apple will pay more back to investors, and why shouldn’t they if there were no investors to take a risk with their money Apple may not have been so successful. Bring back money will enhance the U.S. economy. Does Apple agree to create jobs and reinvest in America? Is that an agreement for this deal? The democrats are upset because they are looking for a piece of the pie for their agenda’s, if the cash stays overseas, we get nothing. If Apple reinvest in the U.S., democrats have the opportunity for employment as well. One could argue that the democrats don’t want to reinvest in the U.S. economy, but that looks bad, any money brought back into the U.S. is a positive action in my eyes.

Ilsa Santiago

5/9/2017 09:33:19 pm

I don't think it's fair for companies to allocate their profits abroad to avoid taxes. I agree with lowering the tax on repatriated cash for a limited time as this would benefit the employment in the United States.
We need to have some tax balance where companies do not feel they have to find loop holes where their money can be allocated abroad as this hurts our economy as well as the average tax payer.
The unfortunate issue is there is no guarantee that if the repatriated tax was lowered Apple and other companies would bring their cash back.

Sharon Taylor link

5/9/2017 10:55:16 pm

I think the U.S. should tax repatriated cash at a rate of 9% for a limited time. I agree with this method because it may give companies that want to bring funds, capital and revenue back to the U.S. the opportunity to do so without paying such a high tax penalty. I may or may not agree with the practice of allowing U.S. companies to flourish and profit overseas while there are struggles here and our economy needs the help. This could be the beginning of a means to a end.

Of course there are pros and cons and we aren't sure what the companies may do with the money but it could go either way. Companies may have the opportunity to expand on ordinary income that may allow for more jobs here in the U.S.
There could also be higher and more payouts on dividends to stock holders, which could increase stock prices and revenue.

Companies could also take the extra funds and utilize for their own benefit like investing in other projects or stock buy backs. It's unfortunate that there is no guarantee that Americans will benefit from the tax repatriation.

The Global Ratings published and anticipated the following: "When repatriation comes, we would expect to see a clearly communicated and orderly distribution of capital through share buybacks, dividends, and to a lesser extent, debt repayments." (Oyedle, A.)

In the end I would like to see balance and benefits for both the companies and the economy here in the U.S.

Reference:

Oyedele, A. (2017, April 26) Trum Tax Plan Repatriation, retrieved from
http://www.businessinsider.com/trump-tax-plan-repatriation-benefit-2017-4

Danielle Romero

5/10/2017 07:57:39 am

After reviewing the information in the article, I am not surprised by the current trends Apple is reporting. My background is in telecommunications and we have seen Apple iPhone sales decrease slightly during late Q1 through Q2 and the start of Q3. Of course with the way cell phone contracts work these days amongst all carriers, consumers are not going to renew any contracts with an antiquated device even though the newest Iphone is only 9 months old. In technology time a 9 month old iPhone is on par with a Sega Genesis. I do believe that the U.S should tax repatriated cash at the lower rate for a limited time because it will do several positive things for different parties. The high tax rate is hindering Apple's ability to do much with all their hoarded cash. With repatriation, the large cash inflow could be used for acquisitions (like the rumored Disney purchase), to pay out dividends, investments in operations, new product R&D, and stock buybacks which will ultimately raise the value of Apple's stock.

Kimberly Hantson

5/10/2017 02:01:02 pm

The United States should absolutely repatriate cash made outside of our country. If a company such as Apple has enough money to buy back $200 billion in stock, they are making enough money to send back to help pay off our countries debt. Of that $200 billion if they were to pay 9% then Apple alone would be paying a tax of over $80 million. This amount of money could benefit our country in many ways. One main reason that it would help our debt. Another reason is that is countries did not want to pay this tax, they could move their companies back here to the United States and we would be able to provide more employment opportunities for the people who are unable to find work.

Eugene M. Chin-Young

5/16/2017 09:05:47 pm

President Trump has a very good idea! I do think that it is essential to bring back much needed money to the United States economy. Some would argue that this was done before and was not very successful as companies were using it to their own benefits back in 2004 under Former President Bush. I am one to believe that doing something, such as giving a 9% tax break is much better than not doing anything and having that money sit overseas in foreign banks and not back in the country that most of those funds originated from. Apple's Chief Executive, Tim Cook suggested that he would bring back much of these funds if there was a tax change such as this one. I would believe that Apple is doing what most companies would do in protecting it's finances to avoid future problems such as bankruptcy in which the company has experienced in the 1990's. The Democrats of course being political will argue that the company will do things such as stock buybacks and paying out large dividends but, at least much of that money that are taxed would be back in the American economy helping it and bringing down our deficit.

John Hartman

5/17/2017 12:54:50 pm

While I understand the concerns that some may have with the repatriation of foreign cash at the 9% rate, I believe it is a good idea. On the surface it could seem as though large corporations are circumventing US tax law and the rich are just getting richer. However, keeping that cash in international banks does nothing to improve the US economy. It is also important to note that companies looking to repatriate cash earned overseas have already been taxed at the foreign rate the entity is established in. So the 9% rate is an additional tax.
To start with, repatriation of this cash (even at the 9% rate) will generate billions (possibly hundreds of billions) of dollars in tax revenue. This is clearly better than zero dollars. While it is safe to assume that some of that money will be used for investment in US infrastructure and will create jobs. If companies decide to use significant portions for dividend distribution, putting cash in the hands of US consumers should be viewed as a good thing and a potential economic stimulus.
In summary I see this one-time reduction in the repatriation tax as a positive economic step. I do not see how bringing billions of dollars back into the US economy and generating tax revenue would be bad. However, this should be done in concert with a reduction in the corporate tax rate. If the US corporate tax rate were more competitive, the repatriation issue would be diminished and companies would not be discouraged from bringing their cash into the US.

5/17/2017 04:46:53 pm

Should have also mentioned that repatriated cash distributed as dividends would be subject to Capital Gains tax.

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