September 4, 2018 / 8:01 PM / 2 months ago

Little evidence of capex surge from tax cuts -Fed

    By Noel Randewich
    SAN FRANCISCO, Sept 4 (Reuters) - Major U.S. corporations
bringing home cash from abroad, thanks to President Donald
Trump's tax overhaul, have boosted share buybacks but there is
little evidence they are reinvesting much of that money to
expand, according to the U.S. Federal Reserve. 
    The biggest overhaul of the U.S. tax code in over 30 years,
the Tax Cuts and Jobs Act passed by Republican lawmakers in
December, slashed the corporate income tax rate and charged
multinationals a one-time tax on profits held overseas. As a
result, companies repatriated over $300 billion in the first
quarter.
          
    In those three months, share buybacks spiked among the 15
U.S. companies with the largest holdings of cash abroad,
according to research published by the Fed on Monday, which did
not name them. Those companies bought back $55 billion of their
own shares in the March quarter, more than double what they
spent on buybacks in the prior quarter, according to the Fed's
research. 
    Apple Inc snapped up a record $43 billion of its
stock in the first six months of 2018, exceeding the stock
market value of almost three-quarters of the companies in the
S&P 500 and helping push its stock market value above $1
trillion last month.
    Evidence that companies invested repatriated cash to grow
their businesses was limited, according to the study. The Fed
paper detected no spike in capital expenditures and R&D in early
2018, but it noted that the top 15 cash holders' levels of
capital expenditures have been slightly increasing in recent
years relative to other companies.
    Proponents of the tax reform argued that cutting corporate
taxes and making it easier for U.S. companies to bring home
profits from overseas would lead firms to reinvest that money to
grow their businesses.
    Increased spending on buildings, assembly lines and R&D
indicates companies expect to expand over the long term, while
buying back shares is widely viewed as a way to increase stock
prices and return unproductive capital to shareholders better
able to reinvest it.
    On Sept. 19, the Bureau of Economic Analysis is expected to
report current account data for the second quarter, including
cash repatriated by companies from abroad.

    
 (Reporting by Noel Randewich; Editing by Richard Chang)
  
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