It all started back in 2004.
The federal government wanted U.S. corporations to repatriate their approximately $800 billion of foreign earnings. A carrot was on offer. Any repatriated earnings would be taxed at a low 5.25% rate.
Many corporations took the carrot. An estimated 843 companies repatriated $362 billion of foreign earnings – 45% of their foreign earnings.
The reason for the carrot was to entice U.S. corporations to expand in the United States and hire more workers. Some did. Others were more interested in rewarding shareholders. For every $1 repatriated, $0.60-to-0.92 was paid as “liberty checks” to shareholders, according to CNN.
Another reward occurred in the fourth quarter of 2012.
Corporate boards were concerned that taxes could soar on payments to shareholders at the close of 2012. Corporations responded by issuing more “liberty checks” to shareholders.
According to financial data firm Markit, 233 corporations delivered “liberty checks” to shareholders in the fourth quarter of 2012. That’s 7.5 times more “liberty checks” than is typical for the final three months of the year.
The numbers were huge. Costco (NASDAQ: COST) paid $3 billion worth of “liberty checks.” Las Vegas Sands (NYSE: LVS) paid $2.3 billion. Loral Space & Communications (NASDAQ: LORL) paid $891.8 million. All told, shareholders pocketed $30.9 billion in “liberty checks.”
Finally, the biggest payout is happening right now. And it’ll easily exceed the previous two.
Two significant changes in U.S. tax laws could produce a record number of “liberty check” payments.
The first significant change impacted the corporate income tax rate. The rate was lowered to 21% from 35%. Many cash-flush corporations will become even more cash flush.
Too much of a good thing is really a bad thing. These cash-flush corporations will move the excess cash off their balance sheets and into shareholders pockets. They’ll pay “liberty checks” to shareholders.
The second significant change – titled “Section 965” – ensures more foreign earnings will return to the United States. The new tax law mandates a one-time tax of 15.5% on untaxed liquid foreign earnings.
Unlike the repatriation tax of 2004, the tax must be paid regardless if the earnings are repatriated.
Goldman Sachs estimates that U.S. corporations have accumulated $3.1 trillion in foreign earnings. They have kept these earnings foreign to avoid paying the formerly confiscatory 35% corporate income tax rate.
The 35% rate no longer applies. If we apply the 15.5% repatriation tax rate, these corporations will be left with $2.62 trillion. If they repatriate 45% of the earnings, as they did in 2004, $1.18 trillion will return home.
If the average “liberty check” payment from the previous repatriation tax holiday is applied, 76% of the $1.18 trillion could be paid to shareholders as “liberty checks.” That’s $897 million in total.
Serious income investors will want to claim their share of these “liberty checks.” The amounts are staggering in total. They’re impressive as individual payments.
One coal-producing corporation paid a “liberty check” that paid some shareholders $4,110. An online gaming company recently paid a “liberty check” worth $3,360 to some shareholders. We’re talking payments up to 20X that offered by other income investments.
More “liberty checks” are on the way. Click here to ensure you collect the next big “liberty check.”