EVAN HOROWITZ | QUICK STUDY
David Paul Morris/Bloomberg News/File
Judging from corporate press releases, the Republican tax cuts already seem to be promoting investment by businesses and improving pay for workers. Dozens of companies have made splashy announcements of rising wages or ballooning bonuses. Last week, Apple said it plans to spend billions of dollars on a new tech support facility.
Such moves could well prove prophetic — a first sign that corporate tax cuts will quickly translate into new jobs and big raises.
Or it could all be public relations spin. That’s always a risk when evaluating corporate pronouncements, but the Trump era has added a new wrinkle — because companies know they can capture the president’s ear by highlighting the influence of his signature corporate tax cut.
When Apple said it expected to invest $30 billion and create 20,000 new jobs in the United States over the next five years, President Trump eagerly spread the news via Twitter.
“Great to see Apple follow through as a result of TAX CUTS,” he tweeted. “Huge win for American workers and the USA!”
But the connection between tax cuts and Apple’s expansion plans is muddier than the president’s tweet would suggest. Apple’s own press release never directly links the two. It just mentions that the company will be investing in new capital projects and will be bringing back money that had long been kept overseas, as part of the new repatriation rules.
Those two things might seem to go together naturally — retrieving money from abroad, then using it to make new investments — but that isn’t really how repatriation works.
It’s true that Apple had billions of dollars in profits held by foreign subsidiaries that it couldn’t directly use for US operations or investments, at least not without paying US taxes.
But banks and investors all knew that Apple controlled that money, so they were willing to make loans at extremely low rates, with the overseas resources serving as the ultimate guarantor of payback.
Which is why the idea of bringing money home is misleading. Before the Republican tax cuts, Apple could issue debt to fund its investments (and pay low interest, thanks to the implied collateral of all that overseas cash). Now, it can choose to tap its overseas funds directly, but the financial difference between these is slight, which is why even the right-leaning Tax Foundation found that past repatriation holidays did virtually nothing to boost corporate investment.
Other provisions of the tax cut might have played a bigger role in Apple’s decision-making, like the expanded tax break for capital expenses. But here again the causal chain is unclear, especially as we don’t know whether Apple was already planning these investments before the tax cuts became law.
Similar questions haunt other companies touting the transformative impact of tax cuts. Maybe those cuts really were the driving force behind fatter bonuses and rising wages at businesses from American Airlines to Wells Fargo. That’s not implausible: Lower tax rates should mean higher future profits, so the bonus might be thought of as an advance on those coming gains.
But you don’t need tax cuts to make this story work. In the current economic climate, where unemployment is low and skilled workers increasingly hard to find, businesses have to raise pay in order to attract and retain workers.
As yet, there’s just not enough evidence to separate truth from spin. But with a little patience, and a wider lens, we should eventually be able to figure out what benefits the tax cuts have brought to workers, shareholders, and businesses.
The key is to look past the words of a few familiar companies and focus on the broader trends. Like wage growth, which hasn’t yet shown any sign of improving, but which could still happen in coming months. Or direct measures of business investment, like the monthly reports on durable goods.
One potential strike against the idea of a tax-cut-fueled boom is the relative weakness of the dollar. If US companies were truly jumping at new opportunities, foreign investors should be eager to join — which would drive up the demand for dollars, relative to other currencies. But the value of the dollar actually has been dropping since November.
Still, barely three weeks have passed since the tax bill took effect, which is a reason to withhold final judgment. It’s too early to say whether Apple and others are making big changes as a result of Republicans tax cuts, or just looking for some good PR and a presidential hat tip.
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