Spend its tax windfall....

Tech’s challenge: How to spend its tax windfall

President Trump and GOP lawmakers are making clear they expect the industry to invest the overseas cash it brings home in U.S. jobs and factories.

By STEVEN OVERLY

The Republican tax bill will bring a windfall to the tech industry's biggest players — along with a heaping dose of pressure from President Donald Trump to invest the savings in jobs and factories at home.

The bill will allow companies like Apple and Microsoft to bring their huge piles of overseas cash back to the U.S. at a dramatically reduced tax rate. The decline — to 15.5 percent for cash from as much as 35 percent — is a boon for the tech giants that lead all U.S. corporations in stashing profits abroad, including a whopping $250 billion stockpile for Apple alone.

Trump and key GOP lawmakers are making clear, though, that they expect the industry to return the favor by putting “America First.”

“One of the most important outcomes of this tax bill is an investment into our future," House Majority Leader Rep. Kevin McCarthy, a California Republican, said in a statement. "And by lowering rates for businesses of all sizes we can expect employees to see higher wages and more opportunities for career advancement. That helps the American worker, their families, and communities.”

Trump boasted last week that Apple and other "great" companies will be able to bring back "trillions" of dollars as a result of the tax bill, promising they “will be spending that money right here, and it will be jobs and lots of other good things.”

But skeptics fear that companies could use the money, once it’s repatriated, to bolster their stock prices and increase executive compensation, rather than add jobs.

"Companies could just give it out in dividends. They could use it for stock buybacks. I don’t think that’s the best use of that funding," said Democratic Rep. Ro Khanna, whose district includes Apple's Cupertino, Calif., headquarters. "I would rather it have at least been linked to an investment in public education or infrastructure. There’s no such linkage there."

Apple didn't respond to a request for comment on the tax bill or its plans once Trump signs the measure. CEO Tim Cook, who spent time this year at the White House and Capitol Hill talking about taxes, told NBC News last month he expects Apple will add more jobs as a result of tax reform but did not elaborate.

The current repatriation rate is "not good for investment in the U.S., so this needs to be fixed," Cook said at the time. "In my view it should have been fixed years ago, but let's get it done now."

Now that the tax bill is on the brink of passage, however, Apple and other tech giants that store the most cash abroad — Microsoft, Cisco, Google parent Alphabet and Oracle, according to data compiled by Bloomberg — will be closely watched for their U.S. activity. Those companies either declined or did not respond to requests for comment on this story.

“This is a tax stimulus in many ways for the tech sector at a time when it isn’t necessarily needed, so it will be interesting to me what the tech sector does with all of this newfound cash,” said Channing Flynn, Ernst & Young's global technology tax leader. “I bet they do wind up doing things that don’t necessarily stimulate the economy but wind up providing value to shareholders.”

A 2004 tax holiday that allowed companies to bring back foreign earnings at a reduced tax rate required them to first outline plans for using the funds on investments in jobs and infrastructure, though Flynn said much of the money was still used to enrich shareholders. No such requirements are in place this time.

Trump told The Wall Street Journal in July that Cook had promised him Apple would build "three big plants, beautiful plants" in the U.S., a claim Trump reiterated to reporters at a White House meeting in October. Apple has declined to comment on those remarks, and Trump did not provide further details.

Since Trump's election, Apple has made some domestic moves. The company in May unveiled a $1 billion fund to invest in U.S. advanced manufacturing. So far, the fund has shelled out $200 million to a Corning factory in Kentucky and $390 million to a Finisar facility in Texas. Both companies manufacture parts for Apple products.

Apple also announced plans in August to build an Iowa data center after receiving a series of state and local tax breaks, though data centers typically employ a small number of workers following the construction phase.

Looming over all this is Trump's track record of expressing his Twitter-fueled discontent with companies that manufacture overseas. Since his campaign, Trump has made a habit of publicly bashing companies that build American products abroad while praising those that declare plans to add jobs or plants in the U.S. — even if the plans actually predated his presidency.

The repatriation rate is just one aspect of the tax package that benefits the tech industry, which deployed hundreds of lobbyists in Washington to secure favorable provisions.

Like most corporations, tech companies will benefit from the corporate tax rate dropping from 35 percent to 21 percent starting next year. The U.S. will also move to a "territorial" tax system in which future corporate income made abroad is only taxed in the country where it is earned — not taxed a second time in the U.S. — a provision sought by tech and other multinational firms.

The bill also preserves an existing research and development tax credit valued by Silicon Valley and lowers the tax rate on profits earned abroad on intellectual property held in the United States.

At the same time, the plan includes a minimum tax on offshore profits that could create a new tax burden on companies meant to discourage them from moving future money or operations overseas. That could pinch tech firms that have spent years optimizing their overseas operations to pay as little tax as possible.

Still, the legislation has garnered wide support from a tech industry that has been calling for years for tax cuts.

"Our industry will continue to work with stakeholders to refine the tax policies as they take shape in real-life practice," said Dean Garfield, president of the Information Technology Industry Council, "and do everything we can to ensure they boost the ability of businesses of all sizes to continue to harness the power of the internet, enter new markets, and create tech jobs in the United States and around the world."