Reading a few stray tea leaves here and there, it looks increasingly likely that the current budget negotiation will yield a revision of the US overseas profits tax. This would almost certainly include provisions for some sort of one-time repatriation arrangement (likely with some tax, but not full tax).
This will bring a huge wave of money back onshore. The tech sector would likely see the biggest impact. Tech companies (e.g. Cisco and Apple) are carrying HUGE cash balances overseas. They haven’t been able to put it to productive use (not enough non-US tech companies worth buying). And shareholders have grown increasingly restive as those balances ballooned.
The sheer size of those balances (and the one-time nature of a repatriation) will likely drive a wave of special dividends. In theory, this shouldn’t make a difference to valuation and the economy and blah blah blah. In reality, it will probably mean
- a huge transfer to wealthy stock-owning individuals,
- a (much smaller but positive) trickle-down effect on consumer spending (usefully disguised demand stimulus)
- a wave of M&A in the US (especially in tech)
- A downward adjustment of reported stock values, but probably a decent bump-up in underlying company valuations shed of the cash weight.
- Pressure on cash-rich, non-dividend paying companies (e.g. Juniper) to start paying a dividend.
- A bit of deficit reduction and a lot of Federal “infrastructure spending” (some of which might actually go to infrastructure actually in need of repair).
There remains the chance that we could see some meaningful re-shuffling of individual rates. In particular, watch the details of the House Ways & Means proposal (arriving soon). Rep. Camp’s stated aim is to lower individual rates while remaining revenue neutral. That could easily be massaged so that headline rates go down while the total take actually goes up (in a myriad of small and hard-to-pin-down moves). That gives every congresscritter a vote for a “tax cut” (hurrah!) while actually getting more money to spread around. Heck, they might even let a tiny bit flow through to deficit reduction. And that would be a win/win/win vs. our current situation.
As put it to my long-suffering wife, the eye of Mordor is starting to rove across the land once more. Starting to re-focus my antenna on matters beyond tankless hot water heaters, insulation, aluminum vs. fiberglass windows, seismic upgrades, and hose bibbs. I guess the Mordor metaphor casts me as Sauron…? My architects probably see me that way. The builder, however, is happy. And his work is more important in the end.
