Tax Holliday Would Provide Temporary Dollar Boost, says HSBC

October 5, 2011

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Large corporations are actively lobbying for a tax holiday. The sentiment surrounding a repatriation does not seem favorable at this point. The political consensus is that if the cut were temporary, it would not be useful at all. It is being opposed by the AFL CIO and a report surfaced showing companies laid off employees following the last tax holiday.

Nevertheless, the IRS is unlikely to get its hand on this money, Congress could attach a provision that a repatriation must be used to hire people, and it is a policy that could garner bipartisan support. HBC issued a report this summer on the potential impact on the dollar :

  • Corporations generate 24% of profits overseas
  • Estimates of repatriation would be $500 billion to $1 Trillion, above the estimated $362 billion in 2005
  • This is a drop in the bucket compared to the $3 trillion daily volume.

Their conclusion : “While the overall amount of expected repatriation stemming from the proposal is small relative to total flows in the FX market, that was also the case during the 2004-2005 HIA episode,and the USD appreciated notably during the period.”

Even if it does not effect the dollar, it could impact dividend, stock buy back, and acquisition decisions.  Technology companies have the largest cash hoard held overseas.

 

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