This article is excerpted from a Friday File that originally ran on July 6, it has been opened up to all readers now but has not been updated or revised.
As we’ve just recovered from the rocket’s red glare of Independence Day celebrations, how about we look at one of the more absurd teaser pitches of late, Zachary Scheit’s ad for what he calls “Trump’s $2.6 Trillion ‘Cash for Patriots Program.'”
Of course, as soon as anyone tells you you can get wealthy as an “Everyday Patriot,” that should be the first signal to grab tight to your wallet and not let go… but copywriters are talented folks, and they know that greed makes it easy to dangle ridiculous promises to those who are most desperate for a little income.
There are two parts to this when you’re selling an idea of “free wealth” — first you have to make it seem like the cash is real and that there’s a reasonable reason why it would be available for distribution… and then, in order to get folks to skip over the query “why would I get this money?” you have to make them feel like they deserve it.
Typically a copywriter can do this by stoking the feeling in you that you have been wronged, and this is the way someone can make things right for you, a reward for your suffering (Money Map’s “Big Tobacco Must Pay” ad is a good example of that) … or the copywriter will encourage that feeling that we’re special and have been working harder and are otherwise “above average” — that you’re deserving of some reward that has heretofore been hidden because of the “elites” who have been siphoning it off because of their knowledge or connections, but your just reward is coming as soon as you learn the secret.
That latter one is most common, because folks are quick to believe that there’s some secret path to profits that they don’t know about — there is a path to more profitable portfolios, I suppose, but no real secret sauce to be applied to your portfolio beyond “don’t do dumb speculating” and “save more and spend less”… and, of course, the easiest first step on that path is “start out rich.”
And naturally, this ad implies, that secret and the free money hiding behind it will flow like a raging river just as soon as you sign up for Scheidt’s Lifetime Income Report at $79 a year.
Here’s how the ad launches:
“American Patriots, Get Your Share of…
“Trump’s $2.6 Trillion ‘Cash for Patriots Program’
“Everyday patriots are collecting checks of up to $7,980, thanks to this ‘program.’ If you act before August 3, you could be next.”
And a bit later on, to encourage folks to believe that they will be rewarded for feeling like they’re more patriotic than their neighbors… and that as special patriots, they deserve some sort of free money…
“If You Consider Yourself an American Patriot… It’s YOUR Right to Collect That Cash”
So what is this? We get some more clues… including quotes from some reputable sources that make it seem like this “windfall” is real…
“… if you ‘enroll’ in what I call the ‘cash for patriots program’…
“You could end up collecting some of that cash.
“Even though The New York Times has called it ‘an enormous hoard of stashed cash’…
“And said that everyday Americans ‘would enjoy a windfall under the plan.’
“Nobody thought Trump was serious.
“But the truth is…
“Everyday Americans are already collecting incredible sums of cash from this little-known ‘cash for patriots program.'”
this is a good reminder, by the way, of the power of the quotation mark — when you put it around a word or phrase that you’ve quoted from someone else, that’s A-OK and appropriate even if sometimes the quotes are taken out of context… but it also gives you great power to mislead. If an ad copywriter puts other terms inside quotes, things that aren’t actually quotations from elsewhere, that’s a red flag that often means “we’re making this up” and “actually this word is completely inappropriate in this context.”
So in that little snippet, we have the misleading terms “enroll” and “cash for patriots program.” Which means, in all likelihood, that there is no such program, and that whatever you might have to do to get this cash it is not as simple as signing up or “enrolling.”
How does one get that cash, then? More from the ad:
“And here’s what’s really incredible…
“Unlike Social Security or government programs…
“There are absolutely no special requirements to begin collecting cash.
“No age requirement (you could be 27 or 77 years old)…
“No income requirement (you could be unemployed or be a multimillionaire)…
“And you don’t even need to be a Trump supporter. (Democrats, Republicans and independents can collect $1,000s.)
“That’s because the ‘cash for patriots program’ is funded by the private sector.”
And how much money was that again?
“… a total of $2.6 trillion…
“That’s the equivalent of $27,718… on average… for every American taxpayer.
“If everything goes according to plan, that money will soon be flowing into the pockets of patriots across America.
“No wonder Bloomberg has called this plan a ‘Pot of Gold.’
“Fortune magazine said Trump’s plan would give certain American patriots ‘something to cheer about’… because of ‘the prospect of a gigantic windfall.’
That all sounds like free money just floating around, right? $27K per person, “pot of gold,” “gigantic windfall?”
Um, it’s not. Sorry.
What’s being referenced here by Scheidt and his copywriters is the recurring theme of “overseas cash” held by US corporations — and the possibility that a tax cut or change to the tax code, or even a one-time amnesty, will let that cash come home to large corporations and be used or distributed in the US by companies who want to pay dividends or do share buybacks or make acquisitions of other US companies, etc.
If you don’t know the full picture on this, here’s the short version: US multinational corporations are taxed on the income that they bring back home — they owe taxes on the profits that they have booked in overseas markets. This is unusual and almost unique to the US, which is one of the few countries that taxes earnings made outside its borders, and that drives US corporations crazy… so instead of bringing their profits back to the US, they leave it stashed in foreign subsidiaries so they can avoid paying taxes on it.
This has been the law for a long time, and it has been complained about for a long time — particularly by US tech companies, which have, as a group, by far the largest overseas untaxed piles of profits thanks to the fact that high-margin companies like Apple and Microsoft sell a lot of their products using foreign subsidiaries in foreign markets and have been allowing that cash to pile up for years.
It’s not just tech companies, of course, but they’re among our most profitable exporters and they are so profitable that they don’t need that capital for their operations in the US. Second on the list are pharmaceutical companies, who also sell a lot overseas, but many lower profile companies also have at least some profits stashed in foreign subsidiaries that they might bring home if they didn’t have to pay corporate taxes on that cash.
The US government has used this overseas cash before to try to spur domestic investment, by offering amnesty periods of much lower taxes for companies to “repatriate” their profits — most recently George W. Bush did this in 2004 in an attempt to juice the economy, and Scheidt hints about that as well…
“Most people don’t know this…
“But the U.S. government enacted the same type of plan back in 2004…
“And it put $275 billion into the pockets of patriots like you and me.
“The New York Times later confirmed that cash ‘went to [American patriots].'”
I don’t know exactly which NY Times article is being quoted there, but it could be a few different ones — but it could easily be this one from 2009, after what Bush called the “Homeland Investment Act” was far enough in the past to be analyzed with some rigor by economists.
Here’s a relevant paragraph from that article which includes that “went to” … though, of course, no mention of “patriots”, the money went, either directly or indirectly, to corporate shareholders:
“Now the most detailed analysis of what actually happened — using confidential government data as well as corporate reports — has estimated what happened to the $299 billion companies brought back from foreign subsidiaries. About 92 percent of it went to shareholders, mostly in the form of increased share buybacks and the rest through increased dividends.”
That was forbidden by the Homeland Investment Act, of course, since the promise was that this money would be used to invest in the US to spur economic growth — new plants, new infrastructure, new jobs, etc. But money is fungible and corporations that are large enough to have foreign subsidiaries are often complex enough to have a multitude of options when it comes to cash management, so it’s awfully tough to tell a company how a particular dollar must be spent. Subsequent reports have come to similar conclusions, though often with slightly different data (a Senate study in 2011 indicated that $312 billion came back, and that beyond dividends and buybacks it also spurred merger and acquisition activity).
And the potential cash hoard is much larger this time — a dozen years have passed since the last tax holiday, and thanks to booming iPhone sales around the globe Apple alone has more than $250 billion in overseas “stranded” cash. Microsoft is also well over $100 billion, and Cisco and Oracle are also up there near the top of the list, as they were in 2004, but relative newcomers like Google and Gilead Sciences have also stockpiled some meaningful foreign profits that they didn’t have a decade ago. That’s going by the list compiled by Bloomberg last Fall, in the article that included the “pot of gold” quote used in Scheidt’s ad.
There has been no tax holiday or repatriation incentive legislation proposed as of yet, and at this point it appears unlikely that Trump and his party will be able to agree on anything of substance, but you never know — corporate tax reform is probably the easiest big picture item to address, but whether or not Congress would support another amnesty probably depends quite a bit on what other horse trading happens in the months to come.
So despite the fact that there is no “patriot cash” just sitting around, and no “repatriation” has been written into law, Scheidt does note dozens of examples of different “patriots” who are receiving huge amounts per month — $11,365 for Rick S., $1,995 for Dennis G., $1,710 for Sandy A. You get the idea.
Which means that although Scheidt is intimating that the incoming cash from overseas will result in big dividend hikes or special dividends for the shareholders in those companies who bring cash home, he’s also claiming that the ongoing dividends received by other investors are also coming because they’re “on a special ‘patriots list’.”
So clearly, what designates you as a “patriot” is “I own some shares of a company that pays dividends.” And if you own shares and the company pays a dividend, then you receive the dividend payment. No magic, no “enrolling,” and, of course, you only get the money if you’re a shareholder — no one will actually be checking to see if you hung Old Glory outside your front door on June 14, or whether you pay your taxes, or whether you vote or served in the military or root for the USA in the Olympic games or whatever other definition you wish to choose for “patriot.”
And while Scheidt doesn’t go into much detail to hint at the specific “cash for patriots” payouts, I’m quite certain that this is still just a reference to dividend income… so these are, as most Gumshoe readers would have expected the moment they saw the ad, returns on an investment, not “free money” payouts of some kind.
And, to return to the world of rationality, we should give some perspective — Scheidt’s examples don’t get very specific about the particular stocks he might recommend for Lifetime Income Report, but if you’re talking about investments that have both a decent dividend and the potential to grow that dividend at greater than the rate of inflation, then the odds are pretty good that you’re mostly looking at dividend yields in the 2-6% neighborhood.
That just means your expected dividend payout for the next year, based on the current or expected dividend, is going to be something like 3,4 or 5% of the amount you invest to buy the shares. Generally companies that have faster or more reliable dividend growth will be at the lower end, and companies that have slower dividend growth or dividends that don’t get favorable tax treatment (like REIT dividends, for example, which are mostly taxed at regular income tax rates) would be at the higher end.
So what does it take to generate income of $1,710 a quarter, for example? (That’s one of the lower examples touted by the ad). That would be $6,840 a year, so if you are buying a stock with a current 4% dividend yield, for example, that would mean your investment today would have to be $171,000.
That doesn’t mean dividend investing is foolish — it just means it’s not what you might imagine when someone tries to sell you a “cash for patriots” program. If a tax repatriation deal does get passed by the government to let Apple and GE and Cisco and all the other biggies bring home their ‘stranded’ cash and pay only 5% or 10% tax on it instead of 35-40%, then those companies are very likely to pay higher dividends… or even, in some cases, special one-time dividends, but that won’t be happening in the next two weeks, and it won’t come as a surprise to the massive institutional investors who are the primary price setters for large companies.
The potential for corporate tax reform, including the possibility of changing the way foreign earnings are taxed on either a temporary or permanent basis, is arguably a large part of the reason for the rapid rise in the stock market after the election… so it’s also possible that the current dip in large cap tech stocks is just a harbinger of things to come if no corporate tax reform gets on track this year.
All that said, the foolishness of the “cash for patriots” sales pitch doesn’t mean that you should avoid dividend investments — indeed, dividend growth is probably the most consistently successful investment strategy that most of us could follow over the long term. Companies that pay a dividend and consistently raise that dividend each year are likely to be the most stable investments, and if you don’t need the income and are able to reinvest those dividends into new shares each quarter then the compounding returns can be truly remarkable over time.
Just as one example, I bought shares of Retail Opportunity Investments Corp (ROIC) first in 2011, and added a few shares in 2013, so my average cost per share on that investment is about $12.50. That’s lovely, as the company has grown to be worth $19 a share today… but the consistent payment of dividends, automatically reinvested in my account, has brought the actual cost basis of my shares down to $10 and the share count has increased by about 25% without me actually buying anything. That’s not an unusual situation, and it’s not a stock that ever had a particularly high yield or rapid dividend growth — it’s just stable and reliable and gives me a warm feeling in my belly… enough to keep me from fretting overly when the stock falls by 10%, as it has over the past few weeks following Amazon’s takeover offer for Whole Foods that caused all grocery-related shares to tank as fears rise of a shakeup of the grocery industry (ROIC owns shopping centers, most of which are anchored by a grocery store).
So by all means, look for those consistent dividend payers and dividend growers, try to let your dividends reinvest for long periods of time so they can build up the share count (and the dividend-paying potential in future years), and, if the future is at all like the past, you’ll probably be better off ignoring those dividend-paying stocks most of the time and not fretting about the monthly fluctuations in the share price.
But no, you’re not going to get free cash for being a patriot, and if Apple or Microsoft or GE or ExxonMobil decides that some tax incentive is enough to get them to bring their money back home, well, maybe you’ll get some fairly direct benefit from that — if you’re a shareholder, and if they choose to use that money to pay regular dividends, special dividends, or buy back shares to boost the per-share fundamentals of the company (and, presumably, the share price).