Is This Treasury Department Blog Post Super-Bullish For Tech Investors?

johnchambers lookingout tbi

It’s not often that a post on a government blog could be considered “actionable” for investors, but this is interesting…

The Treasury Department has put up a post about the politics and cost of a repatriation tax holiday — letting companies move a bunch of cash from overseas accounts back to the US without paying a ton of taxes on it.

The general tone is negative, that such a tax holiday would be costly, and with little benefit, but Citi’s Steve Englander detects some important wiggle room.

We sent this trade recommendation out, recognising that we might be early to this trade, but also feeling that some political momentum was beginning to emerge that favoured HIA, either as the Administration prefers, as part of comprehensive corporate tax reform, or as US House of Representatives’ Republican Majority Leader Cantor suggested recently, as an interim measure while broader tax reform was debated. Today’s comments on a Treasury blog by Treasury Assistant Secretary Mundaca were viewed by many as a hardening of the Administration line but his conclusion reiterates the Administration’s willingness to deal: “The tax treatment of overseas earnings could be considered as a part of broader corporate tax reform, but as Secretary Geithner has said, it would not be sensible to consider a repatriation holiday outside of that context.”  As a footnote, the Bush Treasury was no more enthusiastic about HIA-1 in 2004 than the Obama Treasury is about HIA-2 now, and on largely the same grounds. However, it was very attractive to the broad business community, caused direct pain to no one and had considerable Congressional support.

If this does happen, the potential impact for investors could be significant. The tech industry has a ton of cash parked overseas that it’s just sitting on for lack of good investment opportunities (think: ageing giants like Microsoft, Cisco, and Intel). Folks have been clamoring for them to pay more in dividends, noting their huge cash piles, but the tax repatriation issue is an impediment.

Take away this barrier, and suddenly a world of dividends, buybacks, and acquisitions opens up.