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Old 04-04-2014, 01:46 PM  
KC native KC native is offline
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Idle cash piles up

Idle cash piles up: David Cay Johnston
http://www.reuters.com/article/2012/...86F0GK20120716
Mon, Jul 16 2012
By David Cay Johnston

(Reuters) - IRS data suggests that, globally, U.S. nonfinancial companies hold at least three times more cash and other liquid assets than the Federal Reserve reports, idle money that could be creating jobs, funding dividends or even paying a stiff federal penalty tax for hoarding corporate cash.

The Fed's latest Flow of Funds report showed that U.S. nonfinancial companies held $1.7 trillion in liquid assets at the end of March. But newly released IRS figures show that in 2009 these companies held $4.8 trillion in liquid assets, which equals $5.1 trillion in today's dollars, triple the Fed figure.
Why the huge gap?

The Fed gets its data from the IRS, but only measures the flow of funds in the domestic economy. The IRS reports the worldwide holdings of U.S. companies, which I think is the more revealing measure.

From the companies' point of view, it makes perfect sense these days to hoard cash.

First, Congress lets overseas profits accumulate untaxed, so long as offshore subsidiaries own the cash. Second, companies have a hard time putting cash to work because fewer jobs and lower wages mean less demand for products and services. Third, a thick pile of cash gives risk-averse CEOs a nice cushion if the economy worsens.

Given the enduring hard times, you might think that corporations have used up their cash since 2009. But real pretax corporate profits have soared, from less than $1.5 trillion in 2009 to $1.9 trillion in 2010 and almost $2 trillion in 2011, data from the federal Bureau of Economic Analysis shows.

That is nearly $1 trillion of increased profits over two years, while actual taxes paid rose less than a tenth as much, BEA reports show. Dividends, wages and capital expenditures all grew less than profits, while undistributed profits rose. The result: more cash.

Bigger profits are good news, but it would have been better news had those increased profits been put to work, not laid off in accounts paying modest interest. Hoarding corporate cash in bank accounts, Treasuries and tax-exempt bonds poses a serious threat to the economy, as Congress recognized when it enacted the corporate income tax in 1909.

Let's get some perspective on these gigantic figures, all measured in today's dollars.

The 2009 cash reported to the IRS equaled America's entire economic output that year from New Year's Day through May Day.

This cash pool came to $16,700 for every man, woman and child in the United States, a 53 percent real increase from 2004, my calculations from IRS data show.

Looked at yet another way, these companies had 11.3 percent of their assets in cash, or enough to pay their 2009 corporate income tax bills, which amounted to $148 billion, more than 34 times over.

In short, U.S. companies hold vastly more cash than is needed to finance their operations.

For investors, companies holding 11.3 percent of their assets in cash lowers returns. Did you buy shares of American Widget so executives could park profits in savings accounts?

For workers, idle cash means idle hands and minds. With one in five Americans unemployed or underemployed, and real median wages in 2010 back down to the level of 1999, this is no time for capital to go on an extended holiday.
For taxpayers, untaxed profits subtly reduce corporate tax burdens and increase the tax burden on individuals. Because taxes owed on offshore profits are not adjusted for inflation, they depreciate at the rate of inflation. That means a double whammy for taxpayers as government pays interest on money it borrows while its accounts receivable from multinational corporations lose value.

Since the income tax system began, Congress has authorized a tax on excessive accumulated earnings to limit damage to the Treasury -- and the economy -- when companies hold far more cash than their operations require. Without the accumulated earnings tax, corporations can become bloated tax shelters instead of engines of growth.

A business holding more cash than its operations reasonably require can be hit with a 15 percent levy under Section 531 of the Internal Revenue Code, on top of the 35 percent corporate income tax. The Tax Court even devised a mechanical test in 1965 for how much is too much.

Historically the IRS has levied only privately owned firms or publicly traded companies with few shareholders. But Internal Revenue Code Section 531 applies to all corporations. President Ronald Reagan signed Section 532 (c), which made that explicit, though with an exception for untaxed offshore profits.

After reviewing decades of literature on these code sections, I cannot fathom any rational basis for giving multinational companies an exception to the cash hoarding rules, which discriminates against purely domestic firms.

Some of the multinational corporations say they will bring home what could be more than a trillion dollars if Congress will give them an 85 percent tax discount. The companies frame this as creating jobs. But as I showed in an earlier column, unless there are strict rules, the money can be used to buy back company stock while destroying jobs.

Want to motivate companies to put some of those trillions of dollars of idle cash to work creating jobs, paying dividends or sharing the burden of taxes? Call 1-202-224-3121 and tell your senator or representative you want Section 531 vigorously enforced - now - and the offshore loophole closed immediately.
(David Cay Johnston is a Reuters columnist. The views expressed are his own.)
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Old 04-04-2014, 01:57 PM   #2
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interesting. thanks for sharing...didnt know about these laws. I dont expect the IRS to have the balls to enact this and upset their corporate overlords.
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Old 04-04-2014, 02:03 PM   #3
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Old 04-04-2014, 02:04 PM   #4
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interesting. thanks for sharing...didnt know about these laws. I dont expect the IRS to have the balls to enact this and upset their corporate overlords.
On this we firmly agree. The US is headed to an oligarchy run by cash and influence.
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Old 04-04-2014, 02:18 PM   #5
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interesting. thanks for sharing...didnt know about these laws. I dont expect the IRS to have the balls to enact this and upset their corporate overlords.
Huh? It's the IRS rules on taxation that incentivizes companies to leave their cash parked overseas as "reinvestment". If anything, you should take the opposite view and get the IRS on the sideline and allow US firms to repatriate these profits back home, with lower (or even one time) tax rates.
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Old 04-04-2014, 02:18 PM   #6
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Gee, why is all this money on the sidelines? Could it be because of the regulatory environment...?
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Old 04-04-2014, 02:20 PM   #7
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Originally Posted by Cochise View Post
Gee, why is all this money on the sidelines? Could it be because of the regulatory environment...?
No.
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Old 04-04-2014, 02:20 PM   #8
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Originally Posted by Cochise View Post
Gee, why is all this money on the sidelines? Could it be because of the regulatory environment...?
Tax environment.
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Old 04-04-2014, 02:28 PM   #9
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Huh? It's the IRS rules on taxation that incentivizes companies to leave their cash parked overseas as "reinvestment". If anything, you should take the opposite view and get the IRS on the sideline and allow US firms to repatriate these profits back home, with lower (or even one time) tax rates.
I was refering to this in the article

Quote:
Originally Posted by article
A business holding more cash than its operations reasonably require can be hit with a 15 percent levy under Section 531 of the Internal Revenue Code, on top of the 35 percent corporate income tax. The Tax Court even devised a mechanical test in 1965 for how much is too much.

Historically the IRS has levied only privately owned firms or publicly traded companies with few shareholders. But Internal Revenue Code Section 531 applies to all corporations.
It sounds like the IRS can use this 15% levy regardless of where the money is "parked", but doesnt.
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Old 04-04-2014, 02:32 PM   #10
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more cash than its operations reasonably require


What does that mean? Who determines that, some bureaucrat with no knowledge of the actual business. These "excess profit taxes" have been tried in the past and have failed. Our high corporate tax rate is the cause of the foreign reserves.
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Old 04-04-2014, 02:40 PM   #11
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The Tax Court even devised a mechanical test in 1965 for how much is too much.
.
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Old 04-04-2014, 05:26 PM   #12
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Progressives are funny. Talk about simplistic thinking.

This "idle" cash is not idle by any means. It just isn't being taxed like they want it. The one thing they get right is that a tax "holiday" to repatriate the money is not going to solve ANYTHING. All that does is encourage more of the same.

This is a perfect example of US companies choosing to jump through all sorts of hoops and paying foreign taxes and interest on domestic loans rather than pay exorbitant domestic taxes. When you see companies willing to go to these lengths, the correct response is not some useless attempt to "force" the money home. The correct response is to look at a "sweet spot" in our tax levels that make this kind of crap not worthwhile.
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Old 04-04-2014, 06:29 PM   #13
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Idle cash is money progressives see as money to be confiscated. Ignore the fact the money is not theirs. They just want it and feel they should be allowed to take it.

The reason some stays overseas is the business needs some of it there and bringing it to the US results in huge tax penalties. They paid tax on it overseas. And just because the government can and wants to, they want to tax it again.

Progressives can eat a sack of shit. Its not their money. Make the US friendly for investing and the money will rush home for good investments. Idle money will never remain idle if there is a better return from spending it.
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Old 04-04-2014, 07:49 PM   #14
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Talk about lack of freedom. If the government decides that your business is keeping to much money in the bank, they can tax that money again until you spend your reserves to their liking.

Can someone explain to me how that is not straight up theft and coercion?
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Old 04-04-2014, 08:21 PM   #15
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Who gives a rats azz how much cash they keep on hand. Friggin envious idiots. How about a law that no American can keep more than $50 in the bank for more than three says? Jeezus
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