Trump's tax plans

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The Walt Disney Co. on Thursday said it would buy selected assets of 21st Century Fox, in the latest multibillion-dollar deal of 2017. Also on Thursday, details began to emerge over the Republican tax deal, which includes cutting corporate taxes and a plan to repatriate the untaxed profits of U.S. firms held overseas. The two events are separate, but point to a longstanding issue in the economy, which is that while economic growth has been steady and solid, companies are using non-organic means to boost their earnings and share prices, a method that may grow less effective with time, and which the tax bill—should it be signed into law—may not alleviate. The Disney DIS, +0.07%  acquisition of Fox FOXA, +6.50% comes at a time when the amount of cash that S&P 500 SPX, -0.41%  companies have on hand is at historic highs, totaling 12% of assets, according to Goldman Sachs data. 

The passage of the tax bill would boost that total, and the acquisition “shows no one knows what to do with their money,” said Luis Maizel, senior managing director at LM Capital Group, referring to companies. He noted that Disney also announced a $10 billion stock buyback program when it made the acquisition news official. “There’s no investment in brick and mortar, and if the tax bill does bring cash back, no one will be using it to build a new factory; there will be no rise in demand for steel or anything like that.” Maizel speculated companies would use any new money in the way they have been, by returning cash to shareholders, either in the form of dividends or buybacks, or to make acquisitions. “It won’t mean anything for organic growth, and little by little the bubble will keep getting bigger.” 

The last time there was an one-time tax on the foreign profits of U.S. companies—following the Homeland Investment Act of 2004, which created a repatriation “tax holiday” with an effective rate of 5.25%, as opposed to 35%—buyback activity surged, jumping 84% in 2004 and 58% in 2005, according to Goldman data.

Why the Disney deal suggests the tax bill may mean little for the economy - MarketWatch