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Memo Pad

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Idle Corporate Cash Piles Up

July 16th, 2012 3:30 pm David Cay Johnston

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.

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  • 4BusinessOnly

    GE is Moving from Wisconsin…
    Keep your eye on Waukesha, Wisconsin….their biggest employer just moved out. General Electric is planning to move its 115-year-old X-ray division from Waukesha,Wis., to Beijing. In addition to moving the headquarters, the company will invest $2 billion in China and train more than 65 engineers and create six research centers.
    This is the same GE that made $5.1 billion in the United States last year, but paid no taxes – the same company that employs more people overseas than it does in the United States.
    So let me get this straight. President Obama appointed GE Chairman Jeff Immelt to head his commission on job creation (job czar). Immelt is supposed to help create jobs. I guess the President forgot to tell him in which country he was supposed to be creating those jobs. Thanks, Jeff, you’re a “real” American…give Barrack our Best! If this doesn’t show you the total lack of leadership of this President, I don’t know what does.

    • 1standlastword

      4business
      “If this doesn’t show you the total lack of leadership of this president…”

      It’s not exactly a “total” lack of leadership. It is BHO’ administration doing what all other corporate minded POTUSs have done and that is the corporate favor contract our congress’ in all administrations–including this one–support.

      It just so happens that people are more upset by it during bad times.

      Would you agree that big business has too big a foot print in American politics….isn’t that the real problem?

      Almost all politicians are seduced by lobbyist favors so the only real solution is to reform the law so these weaklings don’t have to squirm in their leather chairs while on the horns of a dilemma…should I take the cash…turn the favor or…. You get my point.

      • 4BusinessOnly

        I do get your point and I agree that big business has to large of a foot print in politics. It is really concerning when votes are being bought on both sides and it does need to be reformed.

    • Gammaanya

      It’s not Immelt fault that GE is moving out etc. Romney advisors all from Bush time and that is OK??? Far as I know about Wisconsin )I am in Ill right on the border and 1 of my businesses is in Wisc. (I am moving it to Ill) a lot of businesses will be eaving Wisc. They can’t take it Walker no bid contracts. None of the independent guys can get any state jobs as they could before, because they go to his buddies who packed his recall fight. Find out who is expanding the 94/50 overpass in Kenosha/Bristol area. Not local business. Do some checking. It’s not Obama fault that GE doesn’t pay taxes, they don’t pay any or very little from the conception so to speak. Don’t use this as a tool to blame on Obama, GE had it best under Bush years. Did you know that Wisconsin always had the better education, good system going untill Republican’s took over and everything gone to hell, gullible people believe it that Scotty will bring more jobs to Wisconsin (I had nothing to do with Unions), former Governor clinched 200K jobs that were implements when Walker took over and he took a credit for it, but that alrerady dwindle to nothing, because more leaving state. Not only GE. I was looking for one small warehouse for my new venture and it was sad to see all these huge buildings vacant, deteriorating and build on taxpayers money. More houses go up for sale than ever – just take Northshore Rd from Ill 173 to Hwy Z in Wisc. Every 3 rd house on the lake is up for grabs. Heaven for romney and Walker. Guess who is buying all the pretty houses??? I am in CPA, RE and manufacturing and I would not buy any of these house and put people out on the street, just because I can make a 100K instantly. I don’t bite the hand that feeds me. By the way expect your taxes go up in2013 by 5% while the 99% will pay about 3.9 or less if LEGAL deductions or none at all. It’s called CREATIVE LEGAL ACCOUNTING SCAM SUCKERS (CLASS)- i made it up this. LOL It had nothig to do with Obama, courtesy of House.
      Obama advisors have nothig to do with Corp. decisions. Remember Corporation are people my friend. Hmm I have three and I did not give a birth to any of them, I created them on paper, by the way I pay taxes.

  • http://profile.yahoo.com/VTV55S5BALQIDBQFOLH7WIZNSA Don B

    I think it is past time to start putting import taxes and levies on all those products that American companies make overseas and that are imported here. Yes, tax them at the same rate one would an exotic foriegn sportscar. I’m tired of paying my tax dollars for the biggest “welfare queens of all” — American corporations. Tax breaks and incentives should only go to those companies that produce American jobs here. If not, too bad. Maybe younger and more ethical entreprenuers can get a foothold here, that a number of these corporate dinasours have seemed to have abandoned. American companies that produce goods and services overseas should have these items taxed and tariffed heavily when they reach our shores.

    • Gammaanya

      No can do, Obama tried – it died in the House – it will kill jobs per Bonehead, Cantor and McConnell. They filibustered every attempt. That’s why Rep created TARP. it benefits them. In a way it does, help economy but in miniscule way. It’s complicated how import/export works. Sometimes you don’t use money but clearing exchange goods for goods of equal values etc. Sometimes we have to build factories in other countries because of the currency. Why do people here buy CHEAP stuff from CHina??? Same goes for people in CHina, thay can’t afford to buy product from USA because of the labor cost and they don’t pay in dollars. Just pray that none of the countries in the world start using their own currency for everything, them all mighty dollar will be useless. We need to have factories build in other countries, just like Toyota, NIssan have factories here, becaue nobody would buy a car from NIssan or Toyota or Hyundai if imported, all the taxes, profit margin, transportation etc would have to be added to make a profit. It is cheaper to build a factory here and employ people and they don’t have to deal with double taxation etc. It creates jobs in both countries and keep the cost down. DO you know why Chrysler gone belly up when got bought by Mercedes?? They put it on Mercedes technology (engine, electronic s etc) a cheap American body and tried to sell it with a top Mercedes prices. Gone kaput. SMart shopper can smell a junk when see one. Why do people shop at Walmart (in a sense you do not save that much, but keep the Waltons wealthier), because Americans are CHEAP and will not support their own but others and complain.
      And I have to debunk people comments that Corp, here are pay the highest taxes – THEY DO NOT. England is. Actually US Corp. pay the lowest taxes in the last 9 yrs.
      You wanted invest money?? Deposit 100K in polish bank in polish zloty and get about 8-9% return annual paid by qtr or $100K US dollars and get, 0.9%. You get my drift????
      That’s why some of the richest people invest their money in other countries and under their currency. $100.K of US dollars is about 3ooK polish zloty- do the math now.

    • jarheadgene

      You want to talk WELFARE…..major corp.s are the biggest whores for that.

    • http://profile.yahoo.com/3J6OEWYHKZIJQD5X4CJCRJTKPE Patricia

      You are right. But just a few days ago, the Dems brought up Obama’s “Bring Jobs Home Act” which cuts taxes for U.S. companies that move jobs and operations to the U.S. from another country. It would also end tax loopholes that currently reward companies that move jobs overseas — you heard me right! Currently companies are financially REWARDED to move jobs overseas. Well, guess what? The Republicans stone-walled it.

    • http://profile.yahoo.com/6J6SE4LGZ64NBODFC3DLIRUNHQ sanorio

      “American companies that produce goods and services overseas should have these items taxed and tariffed heavily when they reach our shores.”…

      You should also tax foreign companies doing business in the US for their cash and profits made everywhere else the world too.

  • quasm

    Mr. Johnston;

    The corporate income tax rate in the U.S. is higher than in any other industrialized county. For these companies to bring funds back into the States would incur a punishing tax burden on their shareholders. You may be targeting the wrong villain here.

    Dik Thurston
    Colorado Springs

    • jarheadgene

      I CALL……BULLSHIT!

    • ObozoMustGo

      Dick,

      The useful idiots and leftist nutjobs floating around in this sea of leftist insanity don’t take a liking to this much common sense. As well, if you really pay attention to the narrative out of The Memo, you will realize how closely correlated to the Obozo reelection propaganda machine they really are. These guys are nothing more than a mouthpiece of the socialists in America. There is a reason Josef Goebbels called them “useful idiots”.

      Keep fighting the good fight!

      Have a nice day!

      • dljones

        ONG: You just made my day nice!

        • ObozoMustGo

          dl… I am here to help!!! :-)

    • http://profile.yahoo.com/UHE4MJP5FHMFIEAOGEQHETUGDQ Rvn_sgt6768

      Japan is higher at 39.5% and the US rate is a State-Federal combined rate whereas most other nations are national not a combined rate. On the Federal level Dick who sets the rate? Who has the power to tax in America? I believe it is the House who has those duties and no one else.

  • dljones

    All that is written and impressive graphs boil down to this: The US tax rate and unstable administration is keeping the smart money on the sideline. The fuse to the economy is let the free economy work.

  • DurdyDawg

    Fourth! They will not release this start-up cash until (A) when the four years are up or (B) when the GOP and those who control it tells them it’s time (which ever comes first) and to date, they would only be lying if they said they did (you know, like how their lying to us). They (the b’ness world) has given the GOP their backing by deliberately not kick starting the economy but they have their limit of four years then they must explode, if not to boost the economy then to hold off the advocate dogs who will yell even louder about their hoarding as time goes by. If the GOP hasn’t clinched the presidency, then Obama will be the hero of the decade because of the kick start but if the REPS win then they will be able to take all the credit and subsequently assure at least eight years.. Small wonder why their willing to go to any means in order to succeed and their rich masters (who can smell mega-profit even from this far) are willing to shove enough anonymous millions into it in order to own the highest job on the hill. Their only downfalls are (1) the people are no longer chanting, “Anybody but Obama” (in mass) and (2) their backing a blithering idiot when it comes to human understanding and the wealth he covets.

  • http://profile.yahoo.com/3J6OEWYHKZIJQD5X4CJCRJTKPE Patricia

    This is exactly why Obama and other Dems do not want to give big corporations any more tax breaks (unless they bring back jobs to America from overseas) — corporations are already experiencing record profits but are not hiring anyone — so what will corporations do with more money — just hoard that too. Romney says that corporations are job creators — well, not as much as he thinks. DEMAND is what creates jobs — demand for corporations’ goods that will start corporations back to hiring. How do you create demand? Simple, all you have to do is look at history. The great depression to be exact. Between 1939-1941 (before U.S. entered WWII) FDR initiated a huge burst of federal spending which caused a 7% rise in the total number of jobs in America, the equivalent of adding more than 10 million jobs today. That created a huge DEMAND for all kinds of goods and services — because people now had the money to buy those things — which caused corporations to make more goods to supply the uptick in DEMAND. FDR created a huge deficit with that jobs program, much larger than we have today, but it did not hurt us, did it? No, not a bit. Why was that? Because the deficit dropped as more people went back to work and more people were paying taxes. The reason why Clinton left the presidential office with a SURPLUS was because during that time America was at full employment (and we were not fighting 2 wars). The closer you get to full employment, the lower the deficit typically gets. Plus, the federal deficit is not a problem when long-term interest rates are low and right now thay are at historical lows. When the economy is slack, every dollar of increase in federal spending adds $3-$4 dollars to our gross national product. Some economists say it adds as much as $7 dollars. That’s what history has taught us — all we have to do is do it.

  • http://profile.yahoo.com/MHGG5VSCP346T6ZY5FKRVL2HTA wizard

    What we really need to be addressing is whether any of those companies hording cash in offshore accounts get any tax abatements, subsidies or other financial help from the US government. We should also raise import tariffs on those companies whose main holdings are offshore. If GE wants to go to Bejing, they are NO LONGER a US company, and should be treated accordingly. Any products not made in the USA should be taxed into a competitive market price.
    The USA used to manufacture 95% of the clothing worn in this country. Now they only manufacture about 5%. As recently as the 1980s, clothing made up a complete garment district in NY city, complete with a host of jobs, markets, models, seamstresses, brokers, buyers, cloth creation and distribution, and fashion jobs. If those clothes made overseas were taxed accordingly, those jobs would come back. We can not compete with third-world wages, and Republicans will tell you that taxes are too high. But NOT taxing these companies sends jobs overseas to a higher profit margin anyway.

    • Landsende

      Went clothes shopping today and looked at all the labels trying to find clothes made in the USA. Couldn’t find any. They were either made in China, Taiwan, Vietnam or some other country. Even on sale the prices weren’t cheap and the quality was poor. Uneven seams, loose strings, patterns not matched up. These companies are using cheap labor and it shows in the quality of their product but they are making billions of dollars in profits and not paying taxes on it. If all these jobs came back to the United States unemployment would go down, the economy would improve and the deficit would go down if companies paid their fair share. Of course CEO’s wouldn’t be able to draw such huge salaries and bonuses but would still make enough to live a lavish lifestyle and maybe the rest of us would also be able to improve our standard of living.

  • http://profile.yahoo.com/3J6OEWYHKZIJQD5X4CJCRJTKPE Patricia

    Just a few days ago, (In fact, the very day when the Republicans were spending their time trying to overturn the Affordable Care Act for the 32nd bleeding time — the Dems brought up Obama’s “Bring Jobs Home Act” which cuts taxes for U.S. companies that move jobs and operations to the U.S. from another country. It would also end tax loopholes that currently reward American companies that move jobs overseas — you heard me right! Currently American companies are financially REWARDED to move jobs overseas. Well, guess what? The Republicans stone-walled it. It’s very clear to me that the top priority of the Republicans in Congress is not helping middle class,working class & working poor Americans — their top priority is helping the Republican Party.

  • http://profile.yahoo.com/HFYZP2APYPP7H6PWS2ZDQRWFEQ Hillbilly

    The corporations that are hoarding money in overseas country are doing so to try and force the President to give them another tax holiday like Bush did in 2005 so they won’t have to pay any taxes on the money no matter how much they bring into the country. The corporations told Bush 2 if they were given the tax holiday they would call back workers that had been laid off and create new jobs. Bush and the Republican Congress gave them a tax holiday and these corporations brought in lots of money(can’t recall how much money it was reported to be). How many workers were called back to work and how many jobs were created? None, the money brought into the country went for big pay raises and bonuses for the higher ups in the corporations, big dividends for the larger stockholders but non for the small investors and money in the pocket of the owner or owners of the corporations.
    The only time Bush 2 tried to get people back to work he was flimflammed by the big corporations and the rich people that owned them. That tax holiday is another big reason why the country’s debt is so high.

  • http://pulse.yahoo.com/_ZUOKI4GB2Z63XUXLBI5H6WDVGQ GeorgeS

    Corporations can hoard money that denies people opportunities are rewarded for their Darwinism. If poor people hoard they are considered ill. You know who wins this game.