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2.13 MB
Extraction Summary
4
People
10
Organizations
1
Locations
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Events
0
Relationships
5
Quotes
Document Information
Type:
Financial research report / bank of america merrill lynch equity strategy focus point
File Size:
2.13 MB
Summary
This is page 7 of a Bank of America Merrill Lynch 'Equity Strategy Focus Point' report dated January 29, 2017. The document analyzes the potential impact of tax repatriation policies, estimating that S&P 500 companies could bring back over $1 trillion in overseas cash, primarily in the Tech and Health Care sectors. It draws historical comparisons to the 2004 Homeland Investment Act, noting that despite intentions to spur investment and hiring, the majority of repatriated funds in 2004 were used for stock buybacks and dividends. The document bears the stamp 'HOUSE_OVERSIGHT_023075', indicating it was part of a document production to the House Oversight Committee, likely related to investigations into financial institutions connected to Jeffrey Epstein, though Epstein himself is not mentioned on this specific page.
People (4)
| Name | Role | Context |
|---|---|---|
| Melissa Redmiles | Author |
Cited in footnote 2 regarding IRS dividend deduction report
|
| Dhammika Dharmapala | Author |
Cited in footnote 3 regarding NBER working paper
|
| C. Fritz Foley | Author |
Cited in footnote 3 regarding NBER working paper
|
| Kristin J. Forbes | Author |
Cited in footnote 3 regarding NBER working paper
|
Timeline (2 events)
2011-10-11
Release of Majority Staff Report on Repatriating Offshore Funds
USA
Locations (1)
| Location | Context |
|---|---|
Key Quotes (5)
"S&P 500 companies could bring back over $1tn – mostly in Tech & Health Care"Source
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Quote #1
"US corporates in aggregate (including Financials) hold ~$2tn in cash overseas"Source
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Quote #2
"Despite HIA’s intent; most repatriated cash was spent on buybacks/dividends"Source
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Quote #3
"NBER estimates that $0.92 of every $1.00 brought back was used to return cash to shareholders"Source
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Quote #4
"repatriation ultimately did not lead to a pick-up in capex, employment or R&D"Source
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Quote #5
Full Extracted Text
Complete text extracted from the document (3,970 characters)
under the Blueprint (over eight years). The Tax Foundation similarly estimates that a repatriation act could drive spending amounting to $185-200bn in revenues through 2025, which could help fund infrastructure/defense spending.
S&P 500 companies could bring back over $1tn – mostly in Tech & Health Care
Our FX team has written that US corporates in aggregate (including Financials) hold ~$2tn in cash overseas, and their work suggests that nearly half is concentrated within 20 companies. Similarly, as we discuss below, half of the repatriated cash following the 2004 Homeland Investment Act came from just 15 companies, predominantly in Pharma and Tech. Our own analysis of the S&P 500 (based on filings and estimates from our analysts) suggests that non-Financials in the S&P hold approximately $1.2tn overseas, nearly three-quarters of which is in Tech and Health Care (Chart 4).
Our FX team has written that US corporates in aggregate (including Financials) hold ~$2tn in cash overseas, and their work suggests that nearly half is concentrated within 20 companies. Similarly, as we discuss below, half of the repatriated cash following the 2004 Homeland Investment Act came from just 15 companies, predominantly in Pharma and Tech. Our own analysis of the S&P 500 (based on filings and estimates from our analysts) suggests that non-Financials in the S&P hold approximately $1.2tn overseas, nearly three-quarters of which is in Tech and Health Care (Chart 4).
Chart 4: Estimated overseas cash as a % of mkt. cap by sector for the S&P 500 (excludes Financials and Real Estate)
[Bar Chart showing percentages: Tech ~15%, Health Care ~7%, Industrials ~6%, S&P 500 ex. Fins. & Real Estate ~6%, Materials ~4%, Staples ~4%, Cons. Disc. ~3%, Energy ~3%, Utilities ~0.5%, Telecom ~0.5%]
Overseas cash as a % of market cap
[Bar Chart showing percentages: Tech ~15%, Health Care ~7%, Industrials ~6%, S&P 500 ex. Fins. & Real Estate ~6%, Materials ~4%, Staples ~4%, Cons. Disc. ~3%, Energy ~3%, Utilities ~0.5%, Telecom ~0.5%]
Overseas cash as a % of market cap
Note: Overseas cash based on company disclosures where available, BofAML analyst estimates, and BofAML US Equity & Quant Strategy estimates using overseas sales as a guide where the former two were not available. For some companies, analyst estimates are for total accumulated overseas profits (which may not all be in cash). *S&P ex. Fins. & Real Estate cash is as a % of total S&P 500 market cap
Source: Bloomberg, FactSet, BofA Merrill Lynch US Equity & US Quant Strategy, BofA Merrill Lynch Global Research
Source: Bloomberg, FactSet, BofA Merrill Lynch US Equity & US Quant Strategy, BofA Merrill Lynch Global Research
Repatriation in context: a look back at 2004
The last repatriation holiday in the US was the Homeland Investment Act (HIA) of 2004 (part of the American Jobs Creation Act), which allowed for a one-time repatriation of foreign earnings by US multinationals at a reduced effective tax rate of 5.25% (vs. the statutory 35% rate), based on an allowable exemption of 85% of foreign earnings from US taxes (35% x [1-85%] = 5.25%). This deduction could be claimed in the tax year beginning before or after the passage date in Oct. 2004. Approximately $300bn was repatriated, according to the Bureau of Economic Analysis (BEA)’s U.S. International Transactions Accounts Data, vs. an average of $60bn over the prior five years. The IRS estimates² that 843 US companies took advantage of the act.
The last repatriation holiday in the US was the Homeland Investment Act (HIA) of 2004 (part of the American Jobs Creation Act), which allowed for a one-time repatriation of foreign earnings by US multinationals at a reduced effective tax rate of 5.25% (vs. the statutory 35% rate), based on an allowable exemption of 85% of foreign earnings from US taxes (35% x [1-85%] = 5.25%). This deduction could be claimed in the tax year beginning before or after the passage date in Oct. 2004. Approximately $300bn was repatriated, according to the Bureau of Economic Analysis (BEA)’s U.S. International Transactions Accounts Data, vs. an average of $60bn over the prior five years. The IRS estimates² that 843 US companies took advantage of the act.
Despite HIA’s intent; most repatriated cash was spent on buybacks/dividends
Despite the U.S. Treasury Department’s guidelines that repatriated earnings should be spent on capital investment, R&D, M&A, and other pro-growth uses such as hiring, this was not ultimately the result: the National Bureau of Economic Research (NBER) estimates³ that $0.92 of every $1.00 brought back was used to return cash to shareholders ($0.79 for buybacks and $0.15 for dividends)⁴, and that repatriation ultimately did not lead to a pick-up in capex, employment or R&D. In fact, a 2011 report by US Senate Permanent Subcommittee on Investigations⁵ found that the top 15
Despite the U.S. Treasury Department’s guidelines that repatriated earnings should be spent on capital investment, R&D, M&A, and other pro-growth uses such as hiring, this was not ultimately the result: the National Bureau of Economic Research (NBER) estimates³ that $0.92 of every $1.00 brought back was used to return cash to shareholders ($0.79 for buybacks and $0.15 for dividends)⁴, and that repatriation ultimately did not lead to a pick-up in capex, employment or R&D. In fact, a 2011 report by US Senate Permanent Subcommittee on Investigations⁵ found that the top 15
² Redmiles, Melissa: “The One Time Received Dividend Deduction”, https://www.irs.gov/pub/irs-soi/08codivdeductbul.pdf
³ Dhammika Dharmapala, C. Fritz Foley, and Kristin J. Forbes: “Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act”, NBER Working Paper No. 15023, June 2009, http://www.nber.org/papers/w15023.pdf.
⁴ The $0.79 for buybacks and $0.15 for dividends does not sum to the $0.92 cash return figure due to the NBER's calculation methodology.
⁵ United States Senate Permanent Subcommittee on Investigations: “Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals”, Majority Staff Report, October 11, 2011
³ Dhammika Dharmapala, C. Fritz Foley, and Kristin J. Forbes: “Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act”, NBER Working Paper No. 15023, June 2009, http://www.nber.org/papers/w15023.pdf.
⁴ The $0.79 for buybacks and $0.15 for dividends does not sum to the $0.92 cash return figure due to the NBER's calculation methodology.
⁵ United States Senate Permanent Subcommittee on Investigations: “Repatriating Offshore Funds: 2004 Tax Windfall for Select Multinationals”, Majority Staff Report, October 11, 2011
Bank of America Merrill Lynch
Equity Strategy Focus Point | 29 January 2017
7
HOUSE_OVERSIGHT_023075
Equity Strategy Focus Point | 29 January 2017
7
HOUSE_OVERSIGHT_023075
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