S&P Global Calls for Funding U.S. Infrastructure with Repatriated Corporate Profits

$150 Billion Infrastructure Investment Could Be Raised If Half of the $2+ Trillion in Offshore Profits is Returned

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Oct 05, 2016, 09:00 ET

NEW YORK, Oct. 5, 2016 /PRNewswire/ -- S&P Global (NYSE: SPGI) today published research that suggests a private sector solution to help finance America's bridges, roads, and other public works projects: requiring companies to commit a portion of any overseas profits they bring back for infrastructure improvements.

In the report, co-authored by S&P Global Ratings U.S. Chief Economist Beth Ann Bovino, U.S. multinationals would be incentivized to repatriate offshore profits. The report suggests a zero tax rate on repatriated earnings in exchange for companies committing 15% of the returned money to investments in, for example, in interest-bearing infrastructure bonds issued by state and local governments.

The opportunity to reap a return on investment on infrastructure bonds, rather than lose money to taxation, is a substantial enticement for U.S. companies to participate, the report notes.

"There is bipartisan support, including from the presidential candidates, to address our country's infrastructure problems, but there is little consensus on how to fill the huge gap between what the government can finance and how much money is needed to pay for these projects," said Ms. Bovino. "Private capital can be part of the solution. Today's report suggests a one-time economic growth catalyst that could raise $150 billion for infrastructure projects if half of the more than $2 trillion in undistributed U.S. corporate earnings overseas are repatriated."

Ms. Bovino's research has demonstrated that infrastructure investment would spur economic expansion and create jobs through the "multiplier effect." For example:

Every dollar invested in infrastructure would currently add $1.30 to the economy in a few years; and
$150 billion in spending (spread evenly over eight quarters, starting at the beginning of next year) would create roughly 307,000 infrastructure-related jobs in the first two years. The investment would eventually add $189.5 billion to GDP.

The report acknowledges the idea that "companies could come to expect periodic tax holidays, and would continue to park overseas earnings outside the U.S. until the next opportunity arises. In this light, S&P stresses that its proposal represents just the first measure in a more wide-ranging overhaul of the current tax code.

S&P Global sees this as a strong first step toward a long-term, sustainable fix to the U.S. corporate-tax regime that would help reduce the cash hoarding outside the U.S.," the authors write.

The report notes that one way to broader tax reform and to permanently relieve the potential tax burden on overseas cash would be for the U.S. to switch from the worldwide tax system to a territorial system, in which income is taxed by the country in which it is generated – a system used by most countries.

Many companies may currently view their overseas cash as effectively trapped because of the high tax cost of repatriation.

Research by S&P Global Ratings in May 2016 found that the top 15 companies that disclose their cash holdings by region increased their cash balances by 14% -- with cash outside the U.S. accounting for $87 billion. These 15 companies now hold 83% of their cash overseas—up from 70% in 2011. At the same time, the debt of these 15 borrowers grew even faster last year, by $99 billion, suggesting that they had exhausted their domestic cash flows and resorted to increased borrowing to finance dividends and share repurchases – so-called "synthetic repatriation."

"We believe most companies never intended to have such large cash piles parked overseas, and that, if given the choice, many would prefer to repatriate cash, invest in the U.S. and limit their debt," the authors observe.

Read "Rebuilding Through Repatriation: How Corporate Cash Can Save America's Infrastructure," at S&P Global's website at www.spglobal.com/Market-Insights.

About S&P Global
S&P Global is a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. The Company's divisions include S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices and S&P Global Platts. S&P Global has approximately 20,000 employees in 31 countries. For more information, visit www.spglobal.com.

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SOURCE S&P Global