The Republican tax bill that President Trump signed before the Christmas break not only lowers the federal corporate tax rate from 35 to 21 percent, it also includes a one-time tax exemption for companies willing to repatriate foreign earnings held overseas. It is no secret that U.S. companies are holding huge amounts of money abroad, in order to avoid the 35 percent tax cut that repatriation of these funds would thus far have involved. Under the new bill, companies will be able to bring back their foreign cash holdings at a one-time tax rate of 15.5 percent, allowing global players such as Apple to save billions of dollars in taxes.

The goal of this “tax holiday” is to boost domestic investment by providing an incentive to repatriate at least part of the estimated $2.5 trillion that U.S. companies are currently holding abroad. Whether that goal will be achieved remains to be seen though. Similar tax breaks in the past resulted in large-scale stock buybacks rather than a surge in investments, and a 2017 survey by Bank of America Merrill Lynch suggests that we might see similar behavior this time around. As our chart illustrates, paying down debt is the most popular use for repatriated funds. Over the past few years many cash-laden companies have taken on debt in the United States in order to avoid the tax bill that a repatriation of foreign earnings would have entailed. These companies are now looking to pay off some of that debt in light of the interest-rate hikes anticipated for 2018.