Idle cash piles up: David Cay Johnston

[Buster]

http://www.reuters.com/article/2012/...86F0GK20120716

Yup.

These guys need a tax cut.



More evidence that trickle down MAY have worked in the past but it certainly isn’t working now.

By David Cay Johnston

Mon Jul 16, 2012 8:30am EDT


(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.)

(Editing by Eddie Evans)

[AlbanyJet]

People with money have power and ought not be antagonized.

In the 1930s FDR entered the White House and raised taxes/fees/regulations on American businesses.

As a direct result those American businesses closed their doors and laid off employees rather than comply and give their money to the US government.

And the Depression became the Great Depression.

[palmetto defender]

It's no surprise. Why would any intelligent CEO put capital in play in the U.S. when regulatory and tax policy is in flux.
Their job is to make money. If it is to be made outside the U.S. - good.
Draconian policies here - Obama is anti business (pro communist) - why invest here?
Any business TV show or newspaper column has been beating this drum for a long time.
For those of us who know a CEO or CFO, ask them. Even a mid sized company exec will let you know.

[PlumberKhan]

These are the same people who set the system up the way it is today.

Don't fall for their smoke and mirrors about how doing business in this country is so horrible. Last time I checked, High Tax New York doesn't look like Detroit....

[palmetto defender]

Originally Posted by PlumberKhan

These are the same people who set the system up the way it is today.

Don't fall for their smoke and mirrors about how doing business in this country is so horrible. Last time I checked, High Tax New York doesn't look like Detroit....

Have not been in NYC for a bit. Have the South Bronx, Harlem, Bedford Stuyvesant, East NY, Brownsville, South Ozone Park all been cleaned up and gentrified?

Doing business in the U.S. is becoming more difficult. And companies ARE moving production elsewhere if they can. Look at the labels of some products you buy. many former U.S. produced products are now from Brazil, Mexico, Puerto Rico. And Asia.

[Frequent Flyer]

This guy spoonfeeds it to you like it's Gerbers, and moonbat mouthfoamers still won't get it:

[Buster]

Originally Posted by Frequent Flyer

This guy spoonfeeds it to you like it's Gerbers, and moonbat mouthfoamers still won't get it:

Ha

None of this addresses the $1.7 trillion in cash in the US or the estimated $5.1 trillion worldwide.

This video is just a lot of angry name calling

There is a huge supply of cash in the hands of the "job creators". Why arm't they using it to ... create jobs?

Isn't that what the GOP constantly claims is the solution to our economic problems?

A “supply” of cash to invest is needed thus a 20% tax cut is a great idea for all?

[HessStation]

So is the answer more food stamps for the welfare recepitants who continually steal money from the government while they work under the table? And no, I'm not talking about EVERYONE on welfare. But there's plenty of scumbags. So pick your poison.

[DDNYjets]

Thats a lot of money that needs redistributing.

We do need a higher tax rate and less loopholes but what we need more is a smaller gov't. Forget taxes, we could confiscate the entire wealth of the 1% and still be in the red. THAT is a problem.

[sackdance]

Originally Posted by PlumberKhan

Don't fall for their smoke and mirrors about how doing business in this country is so horrible.

Raising the capital gains rate 15% to 40% is the equivalent of putting a snarling doberman pinscher in front of your store during business hours. This not a little tweak to add some badly needed revenue, this is enacting fundamental change.

This directly helps no one, in my opinion. The end game will become apparent soon enough.

[PlumberKhan]

Originally Posted by sackdance

The end game will become apparent soon enough.

What's gonna happen?

Zombie apocalypse? The US becomes Zimbabwe?

Or will life go in has it has for the past 60 years?

Same as it ever was. Same as it ever was.


Sent from my 8.6 acre property with 4 bedroom house with waterfront views and low utility costs because of the gas well on my property using fireworks...

[HessStation]

Originally Posted by sackdance

Raising the capital gains rate 15% to 40% is the equivalent of putting a snarling doberman pinscher in front of your store during business hours. This not a little tweak to add some badly needed revenue, this is enacting fundamental change.

This directly helps no one, in my opinion. The end game will become apparent soon enough.

Thought it was 23%? Which is bad enough...

[Buster]

Originally Posted by DDNYjets

Thats a lot of money that needs redistributing.

We do need a higher tax rate and less loopholes but what we need more is a smaller gov't. Forget taxes, we could confiscate the entire wealth of the 1% and still be in the red. THAT is a problem.

We need a lot of things. like the Pentagon budget to be rduced below the current $600+ billion.

Nobody has suggested confiscating the welath of the upper 1%. But the article i started this thread with said they are sitting on $5.1 trillion in CASH. They have enough wealth to pay off are debt.

[Trades]

Originally Posted by Buster

We need a lot of things. like the Pentagon budget to be rduced below the current $600+ billion.

Nobody has suggested confiscating the welath of the upper 1%. But the article i started this thread with said they are sitting on $5.1 trillion in CASH. They have enough wealth to pay off are debt.

My neighbor may have enough cash under his mattress to pay off all of my debt but that isn't his responsibility nor would I ever ask someone to cover my debts.

It is cash on hand not income. Do you want to start taxing savings every year? The reason it is cash on hand instead of being put to use is because the business climate in the US is not favorable to growth. Government policy is actually encouraging contraction as you can see by companies laying people off all the time. Why risk your cash if there is nothing (more) to gain?

Obamacare is a 1000 pages of unknowns and the waiver process is a joke. Why are some companies given a pass while others aren't? Just more loopholes. Exactly what we need and that is just one bill among tons of new regulations. How can a small business that can't pay a team of lawyers to decipher these regulations comply while being able to compete?

6,125 Proposed Regulations and Notifications Posted in Last 90 Days--Average 68 per Day

By Penny Starr
November 9, 2012

(CNSNews.com) – It’s Friday morning, and so far today, the Obama administration has posted 165 new regulations and notifications on its reguations.gov website.


In the past 90 days, it has posted 6,125 regulations and notices – an average of 68 a day.


The website allows visitors to find and comment on proposed regulations and related documents published by the U.S. federal government. "Help improve Federal regulations by submitting your comments," the website says.


The thousands of entries run the gamut from meeting notifications to fee schedules to actual rules and proposed rule changes.


In recent days, for example, the EPA posted a proposed rule involving volatile organic compound emissions from architectural coatings: “We are approving a local rule that regulates these emission sources under the Clean Air Act (CAA or the Act),” the proposed rule states. “We are taking comments on this proposal and plan to follow with a final action.”


Another proposed rule will provide guidance for FDA staff on "enforcement criteria for canned ackee, frozen ackee, and other ackee products that contain hypoglycin A." (Ackee is the national fruit of Jamaica; unripened or inedible portions can be toxic.)


Some of the proposed regulations revise regulations already on the books.
The website also links to a video of a speech President Barack Obama gave at the U.S. Chamber of Commerce in Washington, D.C. on Feb. 7, 2011, in which the president promised to remove “outdated and unnecessary regulations.”

“I've ordered a government-wide review, and if there are rules on the books that are needlessly stifling job creation and economic growth, we will fix them,” the president said.
A number of groups, including the Competitive Enterprise Institute, expect a rush of new regulations now that President Obama has won a second term:

CEI expects the EPA to move ahead on delayed rules on everything from greenhouse gas emissions to ozone standards. “Rules from the health care bill and the Dodd-Frank financial regulation bill will also likely make themselves known in the weeks to come," the group said on its website.

[Frequent Flyer]

Originally Posted by Trades

My neighbor may have enough cash under his mattress to pay off all of my debt but that isn't his responsibility nor would I ever ask someone to cover my debts.

It is cash on hand not income. Do you want to start taxing savings every year? The reason it is cash on hand instead of being put to use is because the business climate in the US is not favorable to growth. Government policy is actually encouraging contraction as you can see by companies laying people off all the time. Why risk your cash if there is nothing (more) to gain?

Obamacare is a 1000 pages of unknowns and the waiver process is a joke. Why are some companies given a pass while others aren't? Just more loopholes. Exactly what we need and that is just one bill among tons of new regulations. How can a small business that can't pay a team of lawyers to decipher these regulations comply while being able to compete?

Bt 2014 all the Catholic hospitals will close down.

Let me put that in perspective:

1 in 6 people in a hospital bed right now are in a Catholic hospital.
Catholic hospitals cover the costs to the tune of about 28 billion annually for indigents.

Catholic hospitals are one of (if not the) number one employer in NYC and in almost every other city in the USA.

If you think you're healthcare is expensive now, just wait until it's free.

[Winstonbiggs]

Originally Posted by Buster

Nobody has suggested confiscating the welath of the upper 1%. But the article i started this thread with said they are sitting on $5.1 trillion in CASH. They have enough wealth to pay off are debt

That's exactly what the article suggest. Here's the problem all those pensions that go to all those workers who are not in the top 1% are invested in the cash those companies are holding. If you start confiscating their cash to pay off Federal debt those stock prices will fall and the 110 million US citizens that are invested will end up as wards of the Federal government.

The attack on business is an attack on local and State governments who need accelerated appreciation of corporate earning in order to pay off the pensions for public employees all over this country. If you tax it those pension which are invested in that corporate cash, State and local governments will fail. All those people will go on Federal assistance. You will not solve the debt problem you will create a debt problem.

The Stock market going up along with home prices going up is the only reason people are spending enough to create any demand right now. Wreck those 2 engines of demand and we will fall off the cliff and hit the bottom of the ocean.

A government that fosters a good business environment will get businesses to use cash for investment. A government that fosters a bad business environment will do the opposite. Lagging demand coupled with a government that has given business a mixed message on investing is not going to lossen the grip on cash.

The Obama Administration has been fighting risk since the markets crashed and nobody was willing to take on risk. Risk is what we need right now. Government debt being purchased at below real inflation rates shows that nobody is willing to risk money in the current environment fostered by our government or most any government across the globe.

[Trades]

Originally Posted by Winstonbiggs

That's exactly what the article suggest. Here's the problem all those pensions that go to all those workers who are not in the top 1% are invested in the cash those companies are holding. If you start confiscating their cash to pay off Federal debt those stock prices will fall and the 110 million US citizens that are invested will end up as wards of the Federal government.

The attack on business is an attack on local and State governments who need accelerated appreciation of corporate earning in order to pay off the pensions for public employees all over this country. If you tax it those pension which are invested in that corporate cash, State and local governments will fail. All those people will go on Federal assistance. You will not solve the debt problem you will create a debt problem.

The Stock market going up along with home prices going up is the only reason people are spending enough to create any demand right now. Wreck those 2 engines of demand and we will fall off the cliff and hit the bottom of the ocean.

A government that fosters a good business environment will get businesses to use cash for investment. A government that fosters a bad business environment will do the opposite. Lagging demand coupled with a government that has given business a mixed message on investing is not going to lossen the grip on cash.

The Obama Administration has been fighting risk since the markets crashed and nobody was willing to take on risk. Risk is what we need right now. Government debt being purchased at below real inflation rates shows that nobody is willing to risk money in the current environment fostered by our government or most any government across the globe.

Yeah but it isn't fair!!! They have more then us and they won't share!!! <Stomps foot like pouting 12 year old girl/>

[MnJetFan]

Make the welfare receipients work for their checks and no extra money when you have children while on welfare. Time to take the kid gloves off!

[Trades]

Originally Posted by MnJetFan

Make the welfare receipients work for their checks and no extra money when you have children while on welfare. Time to take the kid gloves off!

Man no extra money and cold hands. You are tough!!!

[parafly]

Originally Posted by Buster

There is a huge supply of cash in the hands of the "job creators". Why arm't they using it to ... create jobs?

The reality is that the "job creators" are very poorly named. Consumers and demand are what creates jobs, the people holding most of the wealth simply fill that demand in an effort to make a profit.

With that said, this entire situation is a product of a flawed system. You can't blame them for legally doing what is in their best interests. Reform is needed, and the solution lies with a simplified tax code that encourages investment in American workers.