Tech’s challenge: How to spend its tax windfall
The Republican tax bill will bring a windfall to the tech industry’s biggest players — along with a heaping dose of pressure from President Donald Trump to invest the savings in jobs and factories at home.
The bill will allow companies like Apple and Microsoft to bring their huge piles of overseas cash back to the U.S. at a dramatically reduced tax rate. The decline — to 15.5 percent for cash from as much as 35 percent — is a boon for the tech giants that lead all U.S. corporations in stashing profits abroad, including a whopping $250 billion stockpile for Apple alone.
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Trump and key GOP lawmakers are making clear, though, that they expect the industry to return the favor by putting “America First.”
“One of the most important outcomes of this tax bill is an investment into our future,” House Majority Leader Rep. Kevin McCarthy, a California Republican, said in a statement. “And by lowering rates for businesses of all sizes we can expect employees to see higher wages and more opportunities for career advancement. That helps the American worker, their families, and communities.”
Trump boasted last week that Apple and other “great” companies will be able to bring back “trillions” of dollars as a result of the tax bill, promising they “will be spending that money right here, and it will be jobs and lots of other good things.”
But skeptics fear that companies could use the money, once it’s repatriated, to bolster their stock prices and increase executive compensation, rather than add jobs.
“Companies could just give it out in dividends. They could use it for stock buybacks. I don’t think that’s the best use of that funding,” said Democratic Rep. Ro Khanna, whose district includes Apple’s Cupertino, Calif., headquarters. “I would rather it have at least been linked to an investment in public education or infrastructure. There’s no such linkage there.”
Apple didn’t respond to a request for comment on the tax bill or its plans once Trump signs the measure. CEO Tim Cook, who spent time this year at the White House and Capitol Hill talking about taxes, told NBC News last month he expects Apple will add more jobs as a result of tax reform but did not elaborate.
The current repatriation rate is “not good for investment in the U.S., so this needs to be fixed,” Cook said at the time. “In my view it should have been fixed years ago, but let’s get it done now.”
Now that the tax bill is on the brink of passage, however, Apple and other tech giants that store the most cash abroad — Microsoft, Cisco, Google parent Alphabet and Oracle, according to data compiled by Bloomberg — will be closely watched for their U.S. activity. Those companies either declined or did not respond to requests for comment on this story.
“This is a tax stimulus in many ways for the tech sector at a time when it isn’t necessarily needed, so it will be interesting to me what the tech sector does with all of this newfound cash,” said Channing Flynn, Ernst & Young’s global technology tax leader. “I bet they do wind up doing things that don’t necessarily stimulate the economy but wind up providing value to shareholders.”
A 2004 tax holiday that allowed companies to bring back foreign earnings at a reduced tax rate required them to first outline plans for using the funds on investments in jobs and infrastructure, though Flynn said much of the money was still used to enrich shareholders. No such requirements are in place this time.
Trump told The Wall Street Journal in July that Cook had promised him Apple would build “three big plants, beautiful plants” in the U.S., a claim Trump reiterated to reporters at a White House meeting in October. Apple has declined to comment on those remarks, and Trump did not provide further details.