For the first time in decades, overall productivity has started to decrease. The amount is only 0.1% a year and has started a few years ago. While it is only a small amount, the fact that it is in the negative is alarming when historically its been above 1%. This decrease in productivity is correlated with companies moving their profits to overseas accounts to become non-interest earning assets. Economists believe it is a problem because innovation based companies are stronger than ever with new technological advancements constantly being created. Profit for these companies has increased steadily since 2004 while productivity has declined. The most shocking is technology companies have had the greatest decrease in productivity with the highest profits. Economists believe that the foreign outflow of money would have increased domestic GDP by more than 0.25% per year. While GDPs of Ireland and the Netherlands (tax havens) have swelled exponentially. Economists recognize that the increase in GDP would have been little, but maybe enough to reverse the downward trend in productivity.
Economists believe a tax holiday is drawing closer of some form and that corporations will take advantage of it to repatriate money. Don't expect it to boost investment or productivity they warn though. Economists at Goldman Sachs believe about $200 billion would be repatriated with a tax holiday. $150 billion of this would go not to investment spending but stock buybacks. The primary use of the money repatriated from the 2004 tax holiday went to companies buying back stock. With Companies set to spend this year more money on stock buy backs than in recent history, this extra $150 billion would be the second time in history companies spent more on stock buybacks than on investment spending. This has triggered an increase in value in funds dedicated to buyback stock potential with the largest growing an unnatural 6% since the election. For the average person this simply means their wages won't be increasing and corporations will continue to grow their money stores. The effect is the financial sector will have many transfers but growth will remain constant according to Goldman Sachs chief domestic strategist.
At the end of Apple's last quarter it reported it had $246 billion in cash with over $230 billion being held overseas. Their CFO says it is to avoid taxes and to make possible acquisitions. This money economists believe if brought back to the U.S. should be to improve productivity and could raise wages. Improved wages they argue then lead to higher standard of living and increased GDP. But Apple only hints at possibly buying companies as the use of the money. Apple could purchase the highest valued media conglomerate and still have billions left. Many of the possible moves it could make in acquisitions could be illegal because of antitrust laws. This is a different trend from the 20th century when companies held little extra cash and mostly reinvested it into their companies. Another interesting aspect is Apple is borrowing heavily domestically and not tapping into their cash reserves. Apple now carries almost $80 billion in debt, something that could be easily paid off by their overseas cash. Many economists have no real answer as to why Apple is hoarding so much money, but they do believe the amount is set to grow with Apple still being the worlds most valuable company.
U.S. companies are hoarding over $2.6 trillion in cash over seas. This has grown from $300 billion in 2003. The reason economists believe is to avoid hefty corporate tax rates in the U.S. The U.S. has the highest corporate tax rate of any country at 35%. President Trump in his new tax plan wants to pass a "tax holiday" law allowing corporations to repatriate their money, boosting the U.S. economy. The amount of money held over seas is equal to 14% of the U.S.'s GDP. The tax holiday isn't a new idea and President Bush in 2004 passed a law allowing foreign assets to be repatriated at a 5.75% tax rate. Of the money that would be estimated to be repatriated this would generate about $80 billion in tax revenue for the economy. Economists believe an increase in money won't lead to an increase in GDP but some do suggest an increase in productivity could occur. Other detractors say the lower tax rate will be a huge tax cut for money that corporations would already repatriate regardless of the tax rates domestically. Of the money held overseas only half is estimated to be liquid enough to repatriate as well.