Will tax plan turn cash-hoarding companies into spenders?

NEW YORK - Big U.S. companies have been piling up cash for years but have spent little of it on buying equipment and raising wages and other things to grow the economy.

Republicans say they know how to fix this: Give companies even more money by cutting their taxes.

The $2.6 trillion in cash that U.S. companies have stored abroad is enough to send a check for more than $7,000 to every man, woman and child in the country. The tax plan overhaul would add to that pile under the theory that more money will get companies to invest more, hire more and increase pay for their workers.

The conservative Tax Foundation estimates that the entire overhaul could lead to 4.8 percent more spending by companies on equipment and other capital goods over a decade, and an additional 1.5 percent boost to wages.

Many experts think that is wishful thinking.

"There is more than enough cash for investment," said Daniel Alpert, managing partner at investment bank Westwood Capital. The tax bill is trying "to solve a problem that doesn't exist."

Critics say the companies are more likely to use their tax savings to buy back their own stock and send dividend checks to investors than to expand operations. While the stock market has risen on the expectation of higher earnings, the bond market doesn't seem convinced the plan will accelerate economic growth all that much.

Here's a look at the ways companies could spend their tax windfall.

Raise wages

By all accounts, wages should be surging. The last time the unemployment rate was so low, in 2000, workers were getting an average 4 percent raise each year. By contrast, wages are rising now at just 2.5 percent.

Economists are unsure why raises are so puny, but one thing is certain: It has nothing to do directly with how much money companies get to keep after paying taxes.

Companies generally raise wages only if they are forced to because they need people to do a certain job and there aren't enough of them. In recent decades, there's been a surge in the number of workers globally as hundreds of millions of Chinese and Indians entered the middle class, helping keep wages down.

"Why would a capitalist say, 'I really love American workers. I'm going to raise their wages,' " said Alpert. "If they need one more worker, they're going to source that worker for the lowest possible cost."

Big-ticket spending

Proponents say the tax bill should spur companies to spend more on computers, software and other big-ticket items.

To get companies to invest more, you have to make it more profitable for them, said Scott Greenberg, a senior analyst at the Tax Foundation. He said the impact of the investment break on taxes is limited, though, because the benefit runs out in five years.

Buying back stock

Corporate America has been spending trillions on its own stock in recent years, and the pace has barely eased up. S&P 500 companies spent $517 billion on these buybacks in the 12 months through September, according to S&P Dow Jones Indices.

If history is any guide, the tax overhaul will only fuel more buybacks.

The bill would offer an incentive to companies to return cash they've kept overseas by taxing it at discounted rates of 15.5 percent for liquid assets and 8 percent for illiquid assets.

The last time the federal government offered such a discount, in 2004, companies "repatriated" $312 billion. But those companies tended to use the money to buy back their own shares, not to hire or expand operations. A 2011 Congressional Research Service report found that the tax break "did not increase domestic investment or employment."