Why a tax cut for tech companies to bring home overseas cash won’t have much economic impact

As Silicon Valley weighs the upsides and the downsides of a Trump presidency, one positive often mentioned is the potential for a tax cut that would encourage tech giants to repatriate the billions of dollars they have stashed overseas.

Trump has proposed a one-time tax cut to 10 percent — from the current 35 percent — on foreign-held cash that is brought back to the United States. The five largest holders of cash overseas are tech giants: Microsoft, Apple, Cisco Systems, Oracle, and Alphabet’s Google.

But, according to a report from credit-rating agency Moody’s, there is an important twist here that would significantly dampen any hoped-for economic stimulus:

This money has been all but spent.

Moody points out that Microsoft, Apple, Cisco Systems, and Oracle have “raised significant debt to support dividend payments and share buybacks due to their substantial overseas cash holdings.” With interest rates at historically low levels, these companies have been borrowing like crazy to buy off shareholders while keeping their actual cash made from operations overseas.

Should they be allowed to bring that money back, most likely it would be used to pay down their massive debts, rather than going toward things like expansion, research and development, or hiring. Of course, from Moody’s perspective, this would be good news because it would reduce debt and make the balance sheets of these companies much more attractive.

“Cash repatriation tax relief would provide a one-time boost to financial flexibility, but more comprehensive tax reform that provides companies improved economic access to their global cash would provide greater flexibility and clarity to make long-term capital allocation decisions,” said Rick Lane, a Moody’s senior vice president, in a statement with a report. “It could also prompt companies to raise less debt capital, which would be credit positive.”

But in terms of boosting the economy, well, don’t hold your breath.

A previous repatriation tax holiday in 2004 was largely seen as a dud. Not only did it not induce may companies to actually bring their cash home, in many cases it was used to do things like pay for dividends and stock buybacks. Good for shareholders, but not much help to the broader economy.

Since then, the amount of cash held overseas has exploded. In many cases, that’s because large U.S.-based operations like Apple earn big bucks abroad. However, critics also charge that companies like Apple are playing fast and loose with tax laws to claim they are earning money in jurisdictions with low taxes. Apple is facing a European Union investigation into whether it has an illegal deal with Ireland to cut its tax bill, a case that could cost the company billions in back taxes if it loses.

Moody’s says that the five largest cash holders will have $505 billion overseas by the end of 2016, out of $1.2 trillion of all U.S. corporations.

But their debt levels have also risen fast. Apple had $3.7 billion in debt in 2012 and now has $94 billion, according to Moody’s data. Microsoft has jumped from $12 billion in debt in 2012 to $81.3 billion. Cisco currently has $28.6 billion in debt, while Oracle has $55 billion. Alphabet’s Google is the only one that has not leveraged itself in recent years.

Of course, it’s possible that a bill passed by Congress and backed by Trump would place limitations on how any repatriated cash could be spent. But while legislators might be able to rule out things like share buybacks and dividends, it would be harder to block debt repayments as a use of the funds.

Over the long run, Moody’s said it would prefer to see comprehensive tax reform, rather than a one-time holiday. Short of that, it said companies would continue stockpiling income in foreign banks.