Trump economic adviser surprised when CEOs indicate they won't invest tax savings

http://www.chicagotribune.com/business/ct-biz-trump-tax-plan-corporate-investment-20171115-story.html

by Heather Long
Nov. 15, 2017

President Donald Trump's top economic adviser, Gary Cohn, looked out from the stage at a sea of CEOs and top executives in the audience Tuesday for The Wall Street Journal's CEO Council meeting. As Cohn sat comfortably on stage, a Journal editor asked the crowd to raise their hands if their company plans to invest more if the tax reform bill passes.

Very few hands went up.

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The president and his senior team have kept arguing the tax plan would unleash business investment in the United States - new factories, more equipment and more jobs. But, perhaps as the informal poll suggested, there are reasons to be doubtful that a great business investment boom would materialize.

First, American businesses are already enjoying record profits. If they wanted to invest, they have plenty of money on hand already to do it, says Howard Silverblatt, a senior analyst at S & P Dow Jones Indices, where he tracks all the financial decisions of S & P 500 companies.

Second, executives themselves have indicated they probably won't use extra profits to invest. A Bank of America Merrill Lynch survey this summer asked over 300 executives at major U.S. corporations what they would do after a "tax holiday" that would allow them to bring back money held overseas at a low tax rate. The No. 1 response? Pay down debt. The second most popular response was stock buybacks, where companies purchase some of their own shares to drive up the price. The third was mergers. Actual investments in new factories and more research were low down the list of plans for how to spend extra money.

The results of the Bank of America poll show a very similar pattern of corporate behavior to what actually happened after the 2004 tax repatriation holiday when U.S. companies spent the majority of their money coming back home from overseas on stock buybacks. It was a payday for Wall Street investors that generated little benefit to the middle class and wider economy.

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