For the first time ever, U.S. companies are holding more than $2 trillion overseas, which is more than they’re holding here in America, according to CNBC (emphasis mine):
U.S. companies are for the first time holding more than $2 trillion overseas, according to an analysis that paints a bleak picture of whether that money will make its way home and the limited economic impact it would have even if it does.
Corporate cash has hit $2.1 trillion, a sixfold increase over the past 12 years, Capital Economics said, citing its own database as well as that of Audit Analytics and other sources. There is no official total, but the firm also used regulatory filings that included “indefinitely reinvested foreign earnings” to glean the total sitting outside U.S. borders. …
That total, while daunting in its own right, is now greater than the amount held on U.S. shores, which totals just under $1.9 trillion, according to the latest Federal Reserve flow of funds tally.
So what could be inspiring this sort of behavior? Well, maybe it’s the highest corporate tax rates in the world:
Companies that would bring the cash home would pay the difference between the local tax rate and the U.S. levy, which is the highest in the world for corporations. …
The U.S. “is also one of the few countries to tax worldwide corporate income, rather than just domestic earnings. This creates a clear incentive for companies to keep their foreign earnings abroad, and this is unlikely to change,” Dales and Hunter wrote.
It shouldn’t be surprising to us that, in the face of aggressive taxation, these companies respond rationally.
This sort of news is usually met with a lot of puffed-up rhetoric about unpatriotic corporate executives, but c’mon. We create a national tax code that’s inhospitable to these businesses, and then we all but accuse them of being traitors when they seek to avoid the taxes in other countries?
In the past Congress has attempted tax holidays – a temporary setting-aside of the tax ramifications – to inspire these companies to bring some of this wealth home. It hasn’t worked that well, but that’s because temporary tax policy doesn’t change behavior.
If we want to change this situation permanently, we need to change the tax code permanently.