One of the key planks in Donald Trump's tax reform plan would end the practice of U.S. multinationals stashing hundreds of billions of dollars in offshore accounts to reduce their U.S. tax liability. These companies should be familiar to him: A review of Trump's stock portfolio, as itemized in his financial disclosure form, shows he owns millions of dollars in stock in the same companies that have been most aggressive with these legal but controversial tax strategies.
"They think it is $2.5 trillion," Trump told reporters earlier this month, referring to the amount of cash currently "stranded" offshore. "I think it is much more than that, and boy, if it is, we have hit pay dirt."
Trump contends that returning this capital to the U.S. will spark a dynamic economic resurgence that could push America's gross domestic product, currently laboring just north of 2 percent, to 6 percent. Such growth would pull tens of million of Americans off the sidelines and back into the workforce, although economists scoff at the idea that such a surge is possible.
In a report out this week, Citizens for Tax Justice and the U.S. Public Interest Group ranked the Fortune 500 companies based on how many offshore subsidiaries they have and by the amount of cash they're holding overseas. Trump owns stock in 22 of the top 30.
According to the report, these 30 alone had 1,225 tax-haven subsidiaries and were holding over $1.4 trillion in those accounts. The researchers said the amount of money U.S. multinationals booked offshore doubled between 2008 and 2014.
Earlier this year, Credit Suisse reported signs that the trend might be ebbing, with corporations reporting they were repatriating more then $300 billion in 2014. That was the largest amount returning to the U.S. since 2004, when the country granted a one-year tax holiday and lowered the corporate tax rate to 5.25 percent. Some experts predict that trend could accelerate as prospects for robust economic growth in China and the emerging markets wane.
Trump's campaign didn't respond to multiple requests for comment. According to the press release that accompanied the publication of Trump's Federal Election Commission financial disclosure forms, 40 of Trump's 45 stocks went up in value during 2014, creating a $27 million gain. Trump reported a combined income for 2014 of $362 million.
Still, his stock holdings are a relatively small part of his fortune, which Trump values at $10 billion dollars and which Forbes pegs at $4.5 billion. Trump's FEC disclosure form lists him as a director or president of 515 different LLCs, partnerships and corporations that oversee a global real estate, entertainment and licensing empire.
The FEC disclosure process requires candidates to offer only ranges of value, not actual dollar amounts, for their assets. Trump holds somewhere between $2 million and $5 million dollars in Apple (AAPL) stock and at least $1 million in Caterpillar (CAT) stock. He also holds millions of dollars in dozens of other multinationals that have also used the offshore subsidiary strategies.
Trump's investment in bellwethers such as Apple and Caterpillar, as well as Bristol Myers Squibb (BMY), Goldman Sachs (GS), Google (GOOG) and JPMorgan (JPM), are no surprise. After all, they constitute some of the most widely held companies in the world. Yet it is also true that the tax practices of U.S. multinationals have increasingly come under fire.
For example, Senators Carl Levin, D-Michigan, and John McCain, R-Arizona, and the Senate's Permanent Subcommittee on Investigations in 2013 accused Apple of avoiding tax payments on $74 billion in profits between 2009 and 2012 by using "ghost" subsidiaries in tax-friendly jurisdictions like Ireland. Apple CEO Tim Cook stood his ground and made no apology. Cook fingered the U.S. tax code as the culprit, asserting that "we are deeply committed to our country's welfare."
"We pay all the taxes we owe, every single dollar," Cook told the Senate panel. "We don't depend on tax gimmicks."
Caterpillar took heat for allegedly shifting its most profitable business through Switzerland, where the heavy-equipment giant had negotiated a 6 percent corporate tax rate versus 35 percent in the U.S. Caterpillar execs also emphatically denied they had created "artificial business structures" as a way to avoid U.S. taxes.
Under Trump's plan, U.S. multinationals would pay a one-time 10 percent tax for the money they bring back home. But even if they decide not to repatriate their profits, they would be still subject to the levy. Going forward, the Trump plan would remove the option for U.S. multinationals to defer taxes on their overseas earnings.
The front-runner's tax proposals also call for dialing back the rate for the biggest corporations, sole proprietorships and small businesses to 15 percent, which critics blasted, saying that would generate trillions in red ink. Trump counters that between a combination of government cost-cutting and economic growth, he can roll back taxes without adding to the deficit.
"These offshore strategies have shifted the tax burden from big international companies like the Googles and the Apples to small businesses, the middle class and poor people," said James Henry, senior fellow at the Columbia University Center on Sustainable Development. "What's replaced it is income and sales tax."
"I give Trump credit for raising this issue of the offshoring," said Michael Santoro, professor of management and global business at Rutgers Business School. "I do think there is a deal to be made here, but you have to be a tough negotiator because right now I bet a lot of these companies want to bring this money back anyway."