Last year's American Jobs Creation Act notably repealed a U.S. export tax subsidy that the World Trade Organization had ruled was illegal. It also notably included a one-year provision allowing U.S. companies to repatriate income from foreign affiliates at reduced rates. Of the about $600 billion that it figures is eligible for repatriation, only about $250 billion will be repatriated, says Merrill Lynch & Co., New York.
"When all the direct and indirect effects are taken into account, and keeping in mind that a non-trivial part of the flows will be directed toward non-economic items, the overall macro impact is far less than generally perceived by the economics community, which assume that a large proportion will be used for capex [capital expenditures] or some facsimile thereof," says Merrill.
Specifically, if the cash goes mainly to reducing company debt and shoring up pension funds and to a lesser extent to job training and capital outlays, the five-year economic impact of repatriation would be to create a total of 600,000 jobs, raise the U.S. savings rate by 1.4 percentage points and add just 0.12 of a percentage point to GDP each year.