Corporate boards and company executives reportedly might not rush to create jobs with an influx of cash if President-elect Donald Trump creates a ''tax holiday'' so that American companies can bring back profit that was generated overseas at a lower rate.
“They are likely to use much of the estimated $2 trillion held overseas to acquire businesses in the United States, to buy back their own stock or to pay down debt, say advisers of America's top corporate executives,” the New York Times reported.
Merger bankers ''are sharpening their pencils with what types of deals those larger companies can look at,'' Marc-Anthony Hourihan, co-head of mergers and acquisitions in the Americas for the Swiss bank UBS, told the Times. ''I think M&A. will be fairly high on the list.''
American corporations have kept an accumulation of earnings abroad because they would be subject to paying more taxes when they bring it home, the Times reported.
Trump has said he wants to repatriate such corporate profits with a one-time rate of 10 percent. That is about a third of what is required by the current law, which says companies need to pay up to 35 percent of their earnings to the government, and then get credited for taxes they have already paid overseas, which usually is not much.
“If they were to bring that capital back, those companies could use it to invest in their businesses, which may in turn create jobs. Yet that is only one of several options,” the Times reported.
For instance, companies may use the extra cash on more merger deals, the Times reported.
“If the priority turns out to be deals, that would be good news for investment bankers who generate fees from large advisory assignments. It would be less so for American workers who might get laid off as a result of cost cuts derived from combining two companies,” the Times reported.
“The potential for these reforms, around reduced corporate tax rates and cash repatriation, to put more discretionary cash flow in the hands of companies is significant,” Avinash Mehrotra, co-head of Goldman Sachs’s M.&A. shareholder advisory group, told the Times. “Boards and management teams will have some interesting choices around acquisitions, longer-term capital investments, debt reduction and return of capital.”
To be sure, consumer confidence climbed in December to the highest level since August 2001 as Americans were more upbeat about the outlook than at any time in the last 13 years, according to a report Tuesday from the New York-based Conference Board.
American households are expecting a Donald Trump administration to deliver. They are more upbeat about the prospects for the economy, labor market and their incomes, according to the Conference Board’s consumer-confidence report.
The results corroborate surveys by the University of Michigan and the National Federation of Independent Business, which showed jumps in household and business sentiment on Trump’s pledges to boost jobs, cut taxes and ease regulations.
Economist Takeaways, Bloomberg reported.
“The post-election surge in optimism for the economy, jobs and income prospects, as well as for stock prices which reached a 13-year high, was most pronounced among older consumers,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “Looking ahead to 2017, consumers’ continued optimism will depend on whether or not their expectations are realized.”
(Newsmax wire services contributed to this report).
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