Little evidence that tax cuts are creating investment - Reuters

As reported by Reuters, a major tax overhaul by the Trump administration has seen little reinvestment by major corporations despite their cash-heavy windfalls on the back of the cuts, as large companies opt to engage in stock buybacks instead of investing in the economy, running contrary to the US Presidential administrations claims.

Key quotes

"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.

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. 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."