by Gene D. Balas

When examining policy proposals, it pays to understand certain ramifications beyond the simple premise of an idea. More specifically, consider the repatriation of funds from the foreign subsidiaries of U.S. corporations. (This is not a discussion of lowering the corporate tax rate; rather, this discussion only pertains to the ability of corporations to allow their foreign subsidiaries to repatriate foreign profits to the parent company without tax.)

According to a November 25, 2016, Wall Street Journal article, over the past decade, total undistributed foreign earnings of U.S. companies have risen from about $500 billion to more than $2.5 trillion, a sum equal to nearly 14 percent of U.S. gross domestic product.

Now, just what exactly is that pot of money actually doing, when it is held by foreign subsidiaries? Would it boost economic activity if the U.S. had a tax “holiday” to allow repatriation of those funds here? Well, it turns out that it isn’t some unused mountain of cash that is sitting idly by, stockpiled in some warehouse. Instead, those funds are often already here in the U.S., already invested and at work, though they are owned by the foreign subsidiary, according to recent research from the Atlanta Fed.

In 2011, the Senate Permanent Subcommittee on Investigations conducted a survey of 27 large U.S. multinationals. Survey results showed that those companies’ foreign subsidiaries held nearly half of their earnings in U.S. dollars, including U.S. bank deposits and Treasury and corporate securities. Consider the table provided by the Atlanta Fed on just how much of those funds are already denominated in dollars and invested in the U.S.:

Those investments may be in the form of securities or bank accounts, of course, but they may also be invested in the physical equipment and structures of operations here in the U.S. A report from the Joint Committee on Taxation notes these earnings: