On Wednesday, Apple said it would spend approximately $350 billion in the U.S. over five years on domestic jobs, manufacturing and data centers. The impetus for Apple’s decision was the Tax Cuts and Jobs Act that was signed into law by President Trump on Dec. 22.
Until then, Apple CEO Timothy Cook had resisted returning the company’s cash to America. On “60 minutes” in 2015, Cook said: “I do not think that it is a reasonable thing to do.”
The reason for that view was obvious.
The tax overhaul means Apple will pay 15.5 percent ($38 billion) in taxes on the $250 billion in cash that the company holds overseas. Under the former tax law, Apple would have paid 35 percent ($81 billion).
The cuts in the cost of repatriating cash and in the overall corporate tax from 35 percent to 21 percent (although companies rarely paid the full amount) also prompted Apple to say it would increase from $1 billion to $5 billion a fund to expand its domestic manufacturing capabilities and would give employees a bonus of $2,500 in restricted stock.
Cook said: “We believe deeply in the power of American ingenuity, and we are focusing our investments in areas where we can have a direct impact on job creation and job preparedness. We have a deep responsibility to give back to our country and the people who make our success possible.”
Apple estimated that its actions would benefit the American economy by more that $350 billion over the next five years.
Apple, while its actions involve larger sums, is not alone in its responses to the change in the tax law.
American companies have kept some $2.5 trillion abroad. Apple’s hoard is followed by Microsoft Corp.’s $137 billion, Cisco Systems Inc.’s $70 billion and Google’s parent company, Alphabet Inc.’s $64 billion.
Experts say Apple and other firms that bring money back to the U.S. could use that cash for mergers and acquisitions, stock buybacks, higher dividends and debt repayment as well as business expansions.
“There is more potential for increased buybacks for shareholders and acquisitions that might not have taken place if it were not for the cash influx from overseas,” Michael Olson, an analyst at Piper Jaffray, pointed out.
Since the Tax Cuts and Jobs Act passed, some 200 companies have publicly announced bonuses, wage increases or other increases in benefits to employees. For example, American Airlines, Bank of America and AT&T have made one-time payouts of $1,000 cash bonuses to many employees. A number of other companies, including Walmart, have announced increases to their minimum wage or other boosts to their workers’ compensation.
The tax overhaul also reduces the federal small-business income tax to 25 percent and makes other business-friendly changes, including allowing businesses to write off capital investments as expenses. Because businesses will be able to expense their investments faster, it gives them more incentive to accelerate capital investments.
I worry that the increased budget deficit of $1.5 trillion over the next 10 years, according to the Congressional Budget Office’s analysis, could harm our economy, although Treasury Secretary Steven Mnuchin claims that the increase in growth will create so much tax revenue that it will reduce deficits and help pay down the nation’s $20 trillion debt.
Let me emphasize the positive. An analysis by the Washington, D.C.-based think tank the Tax Foundation found that cutting the corporate tax rate could lead to 3.4 percent growth in gross domestic product, $3 trillion in additional capital and a 2.9 percent increase in wages for 10 years.
We need to recognize that American businesses bringing their cash back to the United States will provide long-term benefits to our economy because they will have an incentive to invest here rather than abroad.
Originally published in the Sarasota Herald-Tribune
