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Why Are Corporations Hoarding Trillions?

nytimes.com

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Re: Why Are Corporations Hoarding Trillions?

#21

Post by l3m0ndr0p »

tracker1 wrote: post #5

I've often said that the key to improving investment is to eliminate corporate taxes, tax foreign currency movements (when money moves out of the country), and to put limits on the amount of unutilized/under-utilized assets a corporation can hold onto, and for how long. Corporations better serve the public good when they are spending, and beyond that spending domestically. By shifting funds out of the country and/or…

This is incorrect: "Corporations are meant to serve the public good by encouraging investment and limiting liability of investors not involved in decision making" Corporations are meant to do one thing, make money for the share holders at any cost, by not breaking laws or not being caught breaking laws (or rewrite them). Corporate behavior today reflects this.

The key to improving investment is to prevent corporations from moving their wealth to offshore hideaways. The government must ensure that corporations better serve the public good, because many corporations receive multiple benefits from government: reduced taxes (too many), human resources & infrastructure (to name a few)

Re: Why Are Corporations Hoarding Trillions?

#22

Post by ksdale »

Theoretically the value of all that cash should be baked into the share price. If shareholders think they can better invest the money, they can sell their shares take their money elsewhere, and only have to pay capital gains tax.

If the companies repatriate the cash, they have to pay tax right now which eats up a substantial percentage. Then they still have to find something to do with the cash. If they pay it out to shareholders there will be an additional dividend tax at the individual level so most shareholders would receive like 50 cents on the dollar for the dollars abroad.

Re: Why Are Corporations Hoarding Trillions?

#23

Post by jimrandomh »

mschuster91 wrote: post #12

> Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years. The current US debt is over 18.900.000.000.000 $ ( http://www.usdebtclock.org/# ). Am I getting the author right that the US managed to put on 18 B $ in 20 years?!

No. In the 90s, there was a brief period where the US managed to not have a deficit (ie, it was taking in as much as it was spending). The US has never eliminated its debt, nor should it; that would essentially mean withdrawing the US dollar from circulation.

Re: Why Are Corporations Hoarding Trillions?

#24

Post by mizchief2 »

If they paid it out they would have to pay the corporate tax and it's shareholders the capital gains tax.

By hording it, it keeps the stock price high as they "could" pay it out in dividends. Then the shareholders go and get a nice almost zero interest loan using the stock as collateral and service the interest via the much smaller dividends or other sources of income and pay no taxes on the loan.

Re: Why Are Corporations Hoarding Trillions?

#25

Post by phkahler »

mschuster91 wrote: post #12

> Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years. The current US debt is over 18.900.000.000.000 $ ( http://www.usdebtclock.org/# ). Am I getting the author right that the US managed to put on 18 B $ in 20 years?!

>> The current US debt is over 18.900.000.000.000 Am I getting the author right that the US managed to put on 18 B $ in 20 years?!

Google image search: https://www.google.com/search?q=US+debt&biw=1217&bih=755&sou...

Check this one: http://wolfstreet.com/2014/12/02/us-national-debt-jumps-181-...

So not quite, but at the end of Clinton there was a small surplus. Bush looked at that surplus and said the following:

1) There's a surplus 2) We're not sure why 3) We don't think it will go away 4) Tax brakes and refunds for everyone!

I'm not sure how 3 can be said in light of 2. But we all got a check instead of reducing the debt.

Re: Why Are Corporations Hoarding Trillions?

#26

Post by Nrsolis »

r00fus wrote: post #6
tracker1 wrote: post #5

I've often said that the key to improving investment is to eliminate corporate taxes, tax foreign currency movements (when money moves out of the country), and to put limits on the amount of unutilized/under-utilized assets a corporation can hold onto, and for how long. Corporations better serve the public good when they are spending, and beyond that spending domestically. By shifting funds out of the country and/or…

Seems like that's a proposal that's trivial to exploit, I can think of at least a couple of ways off the top of my head: shell companies funds-shuffling, related companies wash buying/selling, etc.

Adding in another market distortion isn't going to help matters, you only create opportunities for people to game the system in an ever increasing effort to explore the law of unintended consequences.

Those funds are held (usually) as US Treasury securities, or are at least hedged against any local currency risk, much the same way that any sovereign maintains a certain amount of foreign currency reserve.

The most direct way to solve this issue is simply to say that profits earned in foreign jurisdictions are free from US tax. That's effectively what the British do and it's worked well for them vis a vis tax policy.

The second most direct way to solve this issue is to offer reduced taxes for profits earned overseas. This encourages an export-driven economy because funds earned overseas are taxed less than funds earned here.

The "problem" that everyone seems to be solving is: how do we enable the government to take the money of these evil corporations?

That's the wrong goal.

The best strategy is to align the goals of the country/people and the corporations. We haven't done that for a long time.

Re: Why Are Corporations Hoarding Trillions?

#27

Post by iSnow »

I don't think the reasons are that hard to understand. M&A opportunities outside the core business are especially hard to integrate in the software sector. Google and Apple never got social right - social is a field with such extreme network effects that it tends to create natural monopolies. Buying up smaller companies in that field doesn't provide a lot of help in cracking FB's castle.

OTOH, Apple and Google are outcompeting each other in mobile - no other company is currently making big inroads, not even MS, even though they see it as a critical playing field for their future.

And why would one of the big tech giants buy out old-economy companies (eg. in automotive) if they believe disrupting that field with innovation is much more likely to succeed?

In the end, the international financial system let's them get away with hoarding and shuffling around the billions and the companies don't see killer investment opportunities. In a low-inflation period, just stuffing the money under the pillow is probably better than burning it on failed M&A.

Re: Why Are Corporations Hoarding Trillions?

#28

Post by forgetsusername »

mratzloff wrote: post #16
mschuster91 wrote: post #12

> Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years. The current US debt is over 18.900.000.000.000 $ ( http://www.usdebtclock.org/# ). Am I getting the author right that the US managed to put on 18 B $ in 20 years?!

Trillion. Here's a chart of debt as a proportion of GDP: http://dailyreckoning.com/dr-content/uploads/2015/06/Histori...

Why is it that people always talk about only one side of the accounting ledger?

The US has a net worth of nearly $150 trillion dollars. Who cares about the absolute value of debt?

Re: Why Are Corporations Hoarding Trillions?

#29

Post by fennecfoxen »

ryandrake wrote: post #19

Looks like the TL;DR of this article is: "Corporate leadership, being so much smarter than the rest of us dummies, sees something big on the horizon coming. They're saving all their cash so they can later invest because "the next transformative innovation could be just around the corner". Apparently they're smart enough to hoard all this cash, but not smart enough to know exactly what that transformative innovation i…

As a corporation, the traditional thing to do with cash you don't need is to return it to your owners, either through dividends or through share repurchases: If the owners wanted to own money sitting in a bank account, they could put the money in a bank account themselves. If they wanted to own a company, they'd be better off owning just the business part without a chunk of low-return cash attached. Beyond basic liquidity needs, a pile of cash can only drag a company down.

Naturally, returning money works much better when taxes on dividends are low, or when stock prices are low (so you can give the remaining owners a better bang for the buck). Both taxes and stock prices have risen since the crash, however, and spending a cash horde on taxes or on overpriced company stock are a worse drag on the company than holding it.

Re: Why Are Corporations Hoarding Trillions?

#30

Post by forgetsusername »

csense wrote: post #17

I think it's because the Fed's past easy-money policies (QE). The idea of QE is that the Fed puts a ton of cash into the market in order to encourage investment. However investment pushes asset valuations higher. Once asset valuations are high enough, people stop investing because the fundamentals don't support the valuations. The money injected by the Fed will eventually be absorbed by inflation and the Fed reversin…

>The money injected by the Fed will eventually be absorbed by inflation and the Fed reversing course and raising rates to suck money out of the market. But inflation's been low and the Fed's only done a single, very recent increase in interest rates, so "eventually" hasn't arrived yet.

Do you understand the relationship between interest rates and inflation?

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