Tags: Trump Administration | Trump Tax Reform | donald trump | larry kudlow | apple | tax reform

Larry Kudlow: Trump Can Take Credit for Apple's US Growth Plans

By    |   Thursday, 18 January 2018 06:17 PM

Larry Kudlow, the Reagan administration economist who also advised the Trump campaign, said President Donald Trump is right to take credit for companies like Apple Inc. that have announced plans to bring overseas profits back to the U.S., where they’ll be invested.

Apple CEO Tim Cook this week said the iPhone maker will bring home about $252 billion in offshore cash and pay taxes of about $38 billion. The company also plans to create 20,000 jobs in the next five years and contribute $350 billion to the U.S. economy.

“You hear a guy like Tim Cook, who is no Trump admirer, acknowledges part of his decision was a business decision and part of it was related not to politics, but changes in policy,” Kudlow said on business channel CNBC. “It is undeniable that in the last six months, business investment – whether it’s equipment or factories or whatever is picking up.”

Corporate America has kept an estimated $2.6 trillion in cash and liquid securities parked overseas to avoid being taxed a second time when the money is brought back to the U.S. But because of Trump’s plan, that money will be taxed at a 15.5 percent rate, less than the new 21 percent rate for U.S. corporate profits, when it is returned.

Large companies haven’t had a problem finding cheap financing, especially after the Federal Reserve cut interest rates to near zero percent to cope with the 2008 financial crisis. In the past 10 years, U.S. companies have raised trillions of dollars by selling bonds to investors like pensions and mutual funds that have been hungry for higher yields.

Companies have used the proceeds from those debt sales not only to invest in plant and equipment, but also to pay dividends to shareholders and to buy back stock, which has helped to support equity prices. But the cost of capital will rise if the Fed follows through on estimated rate hikes, which likely will damp corporate bond sales. 

Naysayers of Trump’s plan say companies will use the cash they bring home from foreign countries also for buybacks and dividends, not to hire workers and build factories. It remains to be seen is how much the U.S. economy will grow as a result of the tax reform, and how much the federal government will sink deeper into debt over the next 10 years.

Kudlow said returning any money to investors is better than letting it sit idle on the balance sheets of companies. The cash will find its way back into the economy as job-creating investments.

“It puts money from the corporate lockbox into investors’ hands. It doesn’t go into the mattress,” Kudlow said. “Investors will put that money to good use, building new factories, building new companies.”

Trump’s effort to improve incentives for investment and greater productivity stands in stark contrast to the policies of predecessor President Barack Obama, who oversaw a weak economic recovery that was in need of constant support of cheap financing from the Fed. The Fed's efforts to raise interest rates may be the biggest risk to U.S. growth and stock prices, which have hit record levels in the past year.

“President Trump and the Congress are restructuring the American economy,” Kudlow said. “They are now getting us back away from tax and regulatory burdens, back toward the business sector, the business investment sector and the private sector incentives. The war against business … is coming to an end.”

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Larry Kudlow, the Reagan administration economist who also advised the Trump campaign, said President Donald Trump is right to take credit for companies like Apple Inc. that have announced plans to bring overseas profits back to the U.S., where they'll be invested.Apple CEO...
donald trump, larry kudlow, apple, tax reform
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2018-17-18
Thursday, 18 January 2018 06:17 PM
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