Friday, October 27, 2017

Tax reform to benefit the rich

 Trump is selling tax reform on the promise lower corporate taxes would motivate companies to invest in new machines and hire more skilled workers.

 Some of the biggest companies have very different plans. The biggest S&P 500 companies have proposals more pleasing to investors than workers.

U.S. corporations are saying they would use a tax reform windfall to buy back shares, retire debt and other shareholder-friendly moves.

The chief executive of Honeywell International,  Darius Adamczyk, said tax reform will “offer greater flexibility for Honeywell,” adding that the industrial conglomerate would invest more cash in the United States to pay for dividends, mergers and acquisitions, share buybacks and paying down debt.

Amgen Inc CEO Robert Bradway said any tax reform would be incorporated into its capital allocation plans, noting the drugmaker expects to continue to raise its dividend and buy back shares. Lockheed Martin is looking at front-loading pension contributions to take advantage of any lower corporate tax rates next year, Chief Financial Officer Bruce Tanner told analysts.

In the massive 2004 repatriation “holiday” under George W. Bush, in which 843 U.S.-based multinationals brought back $362 billion in overseas profits at a deeply slashed tax rate of 5.25 percent. Most of that money went to stock buybacks and dividend increases. The tax break was called a costly failure in a 2011 report by the Senate Permanent Subcommittee on Investigations, which found it cost the U.S. Treasury $3.3 billion in lost revenue and “produced no appreciable increase in U.S. jobs or domestic investment.”

Trump’s proposal calls for mandatory repatriation of an estimated $2.6 trillion in profits stashed offshore. It would impose two different rates: 3.5 percent on earnings invested in illiquid assets and 8.75 percent on cash and liquid assets. But the outcome would likely be similar to the Bush experience, said Goldman Sachs.

Even small companies, which pay the highest effective tax rate and would be the main beneficiaries of a Trump tax windfall, do not appear focused on hiring. Reuters contacted the 100 largest companies by market value in the benchmark Russell 2000 Index of U.S. small and mid-cap stocks, as well as another 50 in that index that are not covered by securities analysts. None of the companies that responded mentioned boosting their workforce numbers.

http://www.reuters.com/article/us-usa-tax-companies/ceos-suggest-trump-tax-cut-may-lift-investors-more-than-jobs-idUSKBN1CV38Q

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