Policy Documents

Macroeconomic Effects of Reducing the Effective Tax Rate on Repatriated Foreign Subsidiary Earnings in a Credit- and Liquidity-Constrained Environment

Allen Sinai –
January 30, 2009

Study Summary

  • 23% of AJCA repatriated funds went towards hiring and training of U.S. employees.
  • Increasingly, U.S. companies are earning a larger portion of profits oversees. This means there is more and more money being earned and held overseas. It is estimated that in 2007 38% of sales for S&P 500 companies were derived from foreign activities. This means repatriated funds could be substantially greater than in 2004.
  • It is estimated that $565 billion could be repatriated this time around.
  • Another one-time repatriation could increase real GDP by an average of $62 billion a year over five years.
  • Spending on Research & Development would increase by an estimated $7 billion per year over five years.
  • Models show a new one-time repatriation could help reduce the federal budget deficit by $47.6 billion a year over five years.
  • Corporate cash flow would increase by an estimated $134.4 billion a year over five years; it is predicted that this additional money would be spent principally on plant and equipment. This would indicate a significant improvement for nonfinancial corporations.
  • Overall, repatriation could increase liquidity, reduce the need for borrowing, increase cash flow and stimulate capital spending and hiring.