It could be just the thing to put an end to the economic
If enacted, shareholders of dozens -- even hundreds -- of companies
would have to be ready for a tidal wave of stock buybacks
And the overall boost to the
? I think it would lead to billions of dollars in new investment
and expansion, creating millions of jobs. It doesn't take much of a
stretch to realize that would be a boon for the economy and would
send the stock market soaring.
In fact, Washington has done exactly what I'm proposing before --
back in 2004. Back then, it added more than $300 billion to the
economy, but I think it would be more than double that amount this
That's why I think of it as a $700 billion stimulus package --
it wouldn't add one penny to the national debt
It almost sounds too good to be true, but I think everything I've
just said could happen in the coming year.
And all that has to happen is Congress needs to see the advantage
of allowing companies to repatriate -- that is, bring back home to
the United States -- the cash they hold abroad to avoid U.S. taxes.
Corporations are behind the move, unions are behind it, and the
incoming Congress members are behind it, too. It's time to get
Tax holiday spells market boon
The truth is, American companies are flush with cash.
At last count, S&P 500 members were sitting on a $2 trillion
mountain ofliquid reserves. Ordinarily, surplus profits are spent
on equipment upgrades, new factories and other such investments,
known on the Street as "
" spending. But right now, the environment is just too uncertain.
Any cash not earmarked for dividends and stock buybacks has been
And despite having plenty of cash on hand, companies are actively
borrowing rather than writing checks from their own account.
, for example, borrowed $3 billion in June and is now planning to
sell newbond notes.
That has many investors scratching their heads. Why would companies
take on new debt when they already have $2 trillion sitting idle in
Sure interest rates are low, but half of that cash pile is tied up
reportedly has $30 billion in foreign banks.
Johnson & Johnson (NYSE:
and others have billions more. Unfortunately, the repatriation of
foreign profits is subject to a punitive tax of up to 35% by Uncle
That means the money can't be brought home unless the companies
want to see a third of it vanish. So companies are simply letting
it sit, choosing instead to borrow from
investors rather than pay the tax.
just borrowed $6 billion even though it has roughly $40 billion in
idle cash. Crazy.
Meanwhile, everyone is looking for pragmatic solutions to end the
economic malaise and put people back to work. A temporary tax
holiday for repatriated profits is gaining ground with politicians,
especially the new members of Congress headed to Washington.
It would mean multinationals could bring up to $1 trillion in
accumulated income back to the U.S. private sector -- where it
could be harnessed and invested in countless job-creating projects.
A few weeks ago,
unveiled plans for an $8 billion expansion project involving
manufacturing facilities in Arizona and Oregon. Construction alone
will create upwards of 8,000 new jobs. Instead of being big news,
that could be just a drop in the bucket if Congress acted.
Action to Take -->
We've tried every emergency fiscal and monetary measure in the book
with minimal results. This common-sense approach will work. We know
because it has happened before.
When the Homeland Investment Act of 2004 slashed taxes from 35% to
5.25%, companies responded by bringing $315 billion home, much of
which was plowed back into the economy. I'd expect this to happen
again, only on a much larger scale. And if it does, expect a big
rally in the market.
-- Nathan Slaughter
Nathan Slaughter's previous experience includes tenures at
AXA/Equitable Advisors and Morgan Keegan. In addition, he's
earned Series 6, 7, 63, & 65 certifications. Read more...
P.S. -- Any analyst can tell you they like a stock. But how many
are willing to put their money where their mouth is?
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Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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