Trump said the tax law would bring home $4 trillion in offshore profits. Just a fraction of that is back

Corporate America brought $665 billion of offshore profits back to the U.S. last year — falling well short of the $4 trillion that President Trump predicted would return because of the 2017 tax overhaul.

Companies repatriated $85.9 billion in the fourth quarter of 2018, the lowest sum for the year and down from $100.7 billion the previous quarter, Commerce Department data showed Wednesday. That adds to the $579 billion in the first three quarters of 2018.

Corporations are bringing back more than they did in 2017, before the tax law was enacted, when U.S. firms repatriated $155 billion. But in touting the tax overhaul, Trump predicted trillions would return to the U.S., creating jobs and spurring investment. Investment banks and think tanks have estimated that U.S. corporations actually don’t hold that amount in offshore cash, pegging it at $1.5 trillion to $2.5 trillion.

Companies had kept much of their overseas profit offshore over the years because a 35% tax kicked in only if they brought the cash back to the U.S. The Republican tax law set a one-time 15.5% tax rate on cash and 8% on noncash or illiquid assets, regardless of the country where the profits sat.

The repatriation figures were part of a quarterly report on the current-account deficit, which widened from $126.6 billion to $134.4 billion in the October-to-December period. The gap is considered the broadest measure of international trade because it includes income payments and government transfers.

There have long been doubts the tax-law changes would bring about the level of repatriation that Trump suggested. Only about 54% of corporate offshore earnings are held in cash, according to a 2016 paper led by Jennifer Blouin, a researcher at the University of Pennsylvania. The remaining 46% are illiquid assets that would be difficult, if not impossible, to repatriate without selling.

Any claims made about how repatriated cash would boost wages and investment in the U.S. are probably overblown, according to researchers at the University of Richmond and Claremont McKenna College. “Policy changes have a relatively small impact on hiring and investment decisions if firms have relatively easy access to credit markets,” the researchers said in a 2018 paper.

Instead, companies have been plowing the tax-cut cash into stock buybacks. Earlier this month, data from Citigroup Inc. showed that companies in the S&P 500 repurchased more than $800 billion of shares last year, surpassing the amount they invested in new or upgraded equipment.

That’s the first time that buybacks have been larger than capital expenditures, despite a change in the tax law that gives companies immediate write-offs if they buy machinery. Capital expenditures by contrast were slightly more than $700 billion, according to the Citigroup data.

Democratic politicians have blasted the Republican tax law for benefiting corporations and their investors rather than workers. House Ways and Means Committee Chairman Richard Neal (D-Mass.) began a congressional hearing on the tax law, saying the middle class has been left behind.

“Investors are doing very well. Corporate CEOs have it great. Wealthy heirs couldn’t be doing better,” Neal said in a prepared statement Wednesday. “Let’s not pretend that stock market gains and corporate profits tell the whole story of today’s economy.”

Now, uncertainty about whether Democrats could upend the tax law in the coming years is making companies hesitant to overhaul their operations, said Lisa De Simone, an accounting professor at Stanford University.

“There is a lot of concern about doing some of the things intended by the law — repatriating profits, bringing back intangible assets, moving significant operations to the U.S.,” she said. “Those changes are incredibly hard to undo.”