Companies in the U.S. were already sitting on piles of cash before tax reform passed in December 2017. Now, with a strengthening global economy and a tax overhaul that lowers the corporate tax rate from 35 to 21 percent and incentivizes U.S. companies to repatriate all their previously untaxed foreign earnings, those piles of cash are poised to grow substantially. Some estimate there may be more than US$330 billion in tax savings for corporations over the next 10 years, not including the trillions of dollars held overseas that may now come home. The big question is: What will companies do with this windfall?
We know that many will continue their habit of returning money to shareholders in the form of buybacks and dividends, or paying down debt. We believe the most strategic-minded executives will see this opportunity as a watershed moment to reevaluate how they allocate cash, and to invest in giving their businesses a long-term competitive advantage. Companies need to act now or risk their future.