
Apple, Microsoft, and Google hold 23% of all U.S. corporate cash - sethbannon
http://www.geekwire.com/2016/apple-microsoft-google-hold-nearly-quarter-u-s-corporate-cash/
======
WildUtah
The US tax code heavily punishes companies that hold cash in a variety of
ways. The motive is to subsidize banks by requiring companies to rely on short
term debt for operations. It's the biggest and most lucrative of subsidies for
the banking industry and laundering such subsidies is how many bankers get
rich. For instance, Mitt Romney made his money that way.

(The main tax code subsidies here are the business interest loophole and the
accumulated earnings tax)

Usually a big company holds almost no liquid assets and hands profits out to
bondholders and shareholders or invests actively to grow, even in unrelated
businesses. That's to avoid tax penalties.

Apple, Google, Microsoft, and the like are holding masses of cash outside the
USA. Gridlock in Washington and a stagnant and irrational corporate tax code
make it very hard to bring cash home to invest for American companies.
Therefore you find tech companies with few overseas expenses exporting
services and accumulating cash they can't bring home.

(The main tax issue here is the non-territorial tax system in the USA. All
other developed countries have a territorial system.)

Other countries can see this is a problem that kills jobs and wages at home so
they don't do it. Obama has tried to fix it and Trump's main tax proposal is
aimed at it, but both parties in Congress block change. Republicans don't want
to hand Obama a victory and would rather hand out goodies to donors with
loopholes than simplify taxes and Democrats just want to punish profitable
multinationals even if it kills jobs.

And Wall Street is very mercurial with credit for tech companies, especially
growing ones, so they can't rely on the banking subsidies.

The result is that tech giants are the only companies with a reason to
accumulate cash so they overwhelmingly are the only ones that do so.

In summary, this is a government regulatory policy that creates cash rich tech
companies. It's a result of bad decisions on Capitol Hill, not on Wall Street
or Sand Hill Road. It is not a stock valuation or corporate strategy issue.

~~~
mdorazio
I'm trying to figure out where to start with this comment.

1) What is "business interest loophole"? Do you mean carried interest, which
really only applies to investment partnerships and not corporations?

2) The purpose of the Accumulated Earnings Tax is right in the IRS description
of it - "The purpose of the accumulated earnings tax is to prevent a
corporation from accumulating its earnings and profits beyond the reasonable
needs of the business for the purpose of avoiding income taxes on its
stockholders." It is generally in society's best interest for companies to
reinvest their money in the economy and citizens rather than hoarding it,
hence the tax. Or do you disagree with that?

3) I have yet to see anyone take the "we should let corporations bring back
their money tax-free" argument beyond just saying that it would somehow
magically create jobs. Can you provide a rational breakdown of how this is
supposed to work? Apple brings back $200B to the US and then... what? Hires
people it doesn't need? Builds factories that won't be profitable? If a
company thinks it can make more money by investing in on-shore resources, then
it will invest. Instead they're hoarding cash because they don't have anything
good to spend it on. The only argument I can see is that ROI for on-shore use
of funds has to be higher than the repatriation tax rate to justify bringing
the money back, but so what? That just means that we're in an economic
situation where no one thinks they can get a 35% ROI on hiring more people or
spending more on R&D at the scale of multiple billions per year.

~~~
guimarin
3.) I'll take that position. Tax repatriation holiday please!

Money is only useful at a macro scale if it's in motion. These cash reserves
are worthless if they just accumulate. Better to take them back into the US,
and be distributed as dividends to shareholders or through buy backs than to
leave them.

If that money could be invested internationally it would, and so basically the
mere fact that the money is sitting idle in the bahamas is a huge vote of no-
confidence in the other economies of the world. Every once and a while you
used to see the big companies buy stupid expensive office space in London and
other European/asian cities that were experiencing real estate growth. We see
that less now probably because they are already well allocated in that asset
class.

Now you may be thinking, well if it's better to take the money home then leave
it sitting there for a decade, consider the following. If you repatriate the
money and pay anywhere near the 35% corporate tax rate to do so you have to
invest it in the US for at least 5 years with a 10% rate of return before you
get back to what you had held internationally. Outside the fact that this is
basically impossible to do with hundreds of billions of dollars... Absolutely
no quarterly venture (wall street) is going to be allowed to do that, they
will be sued into oblivion by their shareholders just for trying. Especially
since the US regularly holds repatriation holidays. The only tenable long-term
solution to this problem is to not tax corporate earnings from overseas. Tax
them through individuals later, but not the corps. Otherwise Apple could exist
in one form or another for 100 years with 100s billions of dollars just
sitting overseas. Of course people who don't understand economics will argue
that this is defrauding the US gov't of legitimate tax revenue, but my
argument is the US is not the jurisdiction in which this money was earned, so
it should see none of it.

~~~
mdorazio
I think you missed the point of my #3. This is like the underpants gnomes in
South Park: Step 1: Tax-free repatriation Step 2: ???? Step 3: Economic pizza
party

What is step 2 here? Is there any actual evidence that repatriated funds would
go back to productive things in the US economy? When we had a tax holiday in
2004, it was a complete failure for jobs and development [1], and only helped
shareholders and executives. Is that really what we want? For that matter, is
there even a guarantee that companies would distribute all the money back to
shareholders in a way that would lead to personal income tax?

Your argument that the money is not being spent overseas implies lack of
confidence in other economies is exactly what I'm saying - there is no
productive use of those funds available, or else the holders would already be
spending it. I would personally much rather some portion of that money go back
to the government for expenditure directly on public projects than have all of
it go who knows where when it gets repatriated.

I and may other people opposed to tax-free repatriation are perfectly aware of
the economics and simply disagree with you on desired outcomes. My opinion is
that if you don't want to pay US taxes, don't do business in the US. If you
want the benefits of the US labor force, infrastructure, education, legal and
military protection, etc. then you should be willing to pay taxes to enjoy
those benefits. What other countries do or do not do is irrelevant, as are the
desires of necessarily selfish investors. I also disagree that tax-free
repatriation is the only long-term solution available - it's just the one you
personally like the most. For example, there's nothing stopping Congress from
enacting laws to tax stockpiled funds.

[1]
[http://www.wsj.com/articles/SB100014240529702036331045766237...](http://www.wsj.com/articles/SB10001424052970203633104576623771022129888)

~~~
drumdance
If they repatriate the cash, the company can

a) pay dividends, which are taxed on the recipient

b) buy back shares, generating a capital gain for the seller, which is taxed

c) park it in a bank, which boosts reserves and indirectly stimulates the
economy

d) make alternative investments such as corporate venture capital, real estate
etc

I personally think there should be no corporate income tax. Instead, taxes
should be paid by citizens when the money hits their personal bank account.

Yes, there would be opportunities for evasion by people incorporating
themselves. No, I don't know what the ultimate solution to that is.

BUT... right now there is an army of accountants and lawyers who are able to
charge companies like Apple exorbitant fees because the potential tax savings
is so huge. If you have a $100 million tax liability, using accounting tricks
to lower that liability by $20 million justifies paying a lot of lawyers.

If those gains were distributed instead of taxed at the corporate level,
suddenly those lawyers will find they have to service a thousand, probably
tens of thousands of customers to realize the same payoff they get from one
big customer. That changes the economics of tax evasion considerably.

~~~
mdorazio
Thank you for laying out the likely outcomes. My issue is two-fold: 1) we're
basically saying "I guess 15% (dividend and long term cap gains tax) at most
(probably less) is good enough" instead of the 35% they would normally pay,
which just generally seems like bad thinking to me when it comes to setting
policy, rather than finding a different solution. And 2) I'm not aware of any
evidence that b, c, and d are likely to have a positive outcome for the US as
a whole rather than for individuals. (b) assumes that capital gains will be
realized and taxed within a short-term time frame, (c) assumes that banks are
actually in need of reserves, which I don't believe is true [1], and (d)
assumes that alternate investments would actually be pursued that aren't being
funded right now, which I'm also not sure is true to any significant extent
(ex. Google already has Tech Stars and spends mountains of cash on real
estate)

[1]
[https://twitter.com/dallasfed/status/433408941947494400](https://twitter.com/dallasfed/status/433408941947494400)

~~~
SilasX
That "15 percent" dividend tax is _on top_ of venture returns that are taxed
at 35%. It's like if people were saying you have it easy because you only pay
5% taxes, without mentioning that you have to pay regular income/FICA taxes,
before it hits your bank account, and the 5% attaches the second you start to
spend it.

------
boxy310
There was a very interesting article in the NY Times earlier this year about
this subject:

"For other industries, though, a dollar of savings is worth a lot more than
itself. For pharmaceutical companies, a dollar in savings is worth $1.50. For
software firms, it’s even higher: more than $2. This means that investors are
behaving as if they trust the executives in these industries, like Larry Page
of Alphabet, to be smarter about using that money than the investors
themselves could be. ...

"Why? The answer, perhaps, is that both the executives and the investors in
these industries believe that something big is coming, but — this is crucial —
they’re not sure what it will be. Through the 20th century, as we shifted from
a horse-and-sun-powered agrarian economy to an electricity-and-motor-powered
industrial economy to a silicon-based information economy, it was clear that
every company had to invest in the new thing that was coming. These were big,
expensive investments in buildings and machinery and computer technology.
Today, though, value is created far more through new ideas and new ways of
interaction. Ideas appear and spread much more quickly, and their worth is
much harder to estimate."

Source: [http://www.nytimes.com/2016/01/24/magazine/why-are-
corporati...](http://www.nytimes.com/2016/01/24/magazine/why-are-corporations-
hoarding-trillions.html?_r=0)

The implication is that big tech companies see some very disruptive trends
coming down the pipeline, but they're not sure which specific idea or ideas
should take most of the investment, and they're hedging their bets by hoarding
cash for now. Maybe when the AI/automation revolution kicks into high gear,
we'll finally see what they spend all this money on.

~~~
mikeyouse
I like Warren Buffet's phrasing as cash is a call option with no expiration
date. Standard finance theory is that companies should either invest the cash
themselves, or if they can't find good investments, they should return it to
their shareholders so the shareholders can deploy it elsewhere. However if the
management of these companies thinks that the ultimate return on the cash they
hold will be greater _even given the time value of holding a zero-return
investment for years_ then it makes sense to wait to deploy. I happen to think
they're wrong and that they'd be better off returning most of the cash to
their shareholders but that's for the respective boards to decide.

~~~
robbiemitchell
Something I don't understand: why would a company ever return cash if they
don't have to? Isn't it better to have it than not?

~~~
tuna-piano
Think of the "company" as fictitious. All the company is, is the combined
assets of shareholders. So the shareholders decide if they would rather have
the cash in the corporate entity or in their own pockets.

------
gozur88
I think Occam's razor applies here: It's not that management teams have big
plans for the money, or that they "believe that something big is coming,
but... they’re not sure what it will be". It's that they don't know what to do
with the money and there isn't much pressure to disburse it.

Cash hordes are reflected in the share price, so investors can monetize the
cash by selling a few shares. If you're a "buy and hold" investor you don't
want a dividend because that's a taxable event.

------
MrMullen
When a company like Apple has $200B in "cash" overseas, where do they put it?
I mean, is there literally a giant vault of physical cash or gold somewhere or
do they buy 6 month T-Bills or just put it all in a private bank?

BTW: $200 billion in $100 bills weighs 2,200 tons.

~~~
xenadu02
It is all a legal fiction. The money is deposited with banks in NYC, so it's
all here in the USA. Legally it is deposited in the accounts of "Apple
Ireland", "Apple China", etc even though those subsidiary companies are wholly
owned by Apple Inc, a US company.

To be clear I'm in favor of a lower corporate tax rate and making up the
difference in taxes on those worth >$10 million. Money sitting idle in bank
accounts doesn't even do any good for the "capital" part of capitalism, let
alone put money in consumer's pockets. It represents a sink, reducing the
amount of money available to the rest of the economy.

(A separate issue is the fact that accumulating money into corporations or the
top 1% of individuals is bad for the economy as economies function on consumer
spending, either external or internal. You get much greater leverage by taking
money away from them and giving it to consumers, who will immediately spend
most of it and ultimately putting it back into corporate/1% pockets anyway.
The ultra-low taxes and stagnant wages in the US are a form of killing the
golden goose).

~~~
munificent
> I'm in favor of a lower corporate tax rate and making up the difference in
> taxes on those worth >$10 million.

Doesn't that mean that each rich person would just start a tiny personal
"corporation" that owns a lot of very nice things and gives its one employee
free access to the company car, yacht, mansion, etc?

~~~
tjbiddle
This is done _all the time_. Even on the smaller scale with middle/upper-
middle class families; they have LLCs or some other legal avenue that owns
their car, their suburban home(s), etc. It's not just the rich people who do
this - it's not hard for someone who's just intelligent to make the right
choices in both protecting assets as well as diversifying their wealth.

------
Analemma_
Is it apropos on HN to link to cite one's own comment? I made a comment about
this a month or so ago that I think is relevant:
[https://news.ycombinator.com/item?id=11592455](https://news.ycombinator.com/item?id=11592455).
Essentially, I think this cash hoarding is motivated by fear, fear of being
"disrupted" and becoming the next RIM or Palm or whatever: in a dominant
position in year N; dead as a doorknob in year N+3. And this is the toughest
kind of fear, because it's perfectly reasonable but can still get pathological
when taken too far.

------
microcolonel
>Excluding the energy sector, tech comprised 40% of non-financial free cash
flow in 2015, similar to the 42% average since 2007.

This writeup is a bit sensationalized. They try to argue that "tech" is the
biggest by ignoring the actual two biggest. This is like arguing that men are
the majority population, 100% of the remainder after women.

~~~
igravious
Well, what are the numbers for the others sectors: energy and finance? Would
like to know for the sake of comparison.

------
ksec
As someone not an US citizen, it is because US are running into 2016 election
that we have to be constantly reminded by the media there are lots of US
companies holding huge amount of cash overseas?

The amount of these article popping up is just getting silly. And yet not a
single one has proposed a (fair ) solution to the problem / US Tax Code.
Everytime I just end up skip read the article or go straight to HN comment for
some of the best thoughts around.

------
foota
Maybe a stupid question, but why doesn't Apple start a vc fund?

~~~
vlunkr
They don't need it?

~~~
aianus
Define 'need'. I assume the average VC fund returns more than treasuries or
nobody would do it.

They could even give the companies they invest in preferential treatment at
Apple (instant iOS approvals, secret APIs, whatever) to give them a
competitive edge.

------
bcheung
What is meant by cash in this context? I'm assuming a lot of it is invested in
financial vehicles with varying degrees of risk and liquidity? It's not just
sitting in a savings account earning 0.01% interest, is it?

~~~
HappyTypist
The cash is sitting in a bank account in NYC under the name "Apple Ireland" or
"Apple China", or invested in US stocks, bonds, etc with US brokerages, or
lent to "Apple Inc" with corporate bonds.

------
bahmboo
So those 3 could cover federal spending for almost 2 weeks.

------
beezle
Once again the boatloads of cash story rears its head. Except that the figures
stated are inflated, most certainly in the case of Apple who already spent a
good amount of that cash by issuing debt to pay for dividends and stock
buybacks.

------
bogomipz
Don't share holders want some of this money back? 200 billion in cash just
sitting there is not doing anyone much good.

------
chirau
I am curious as to how links on HN work. I am certain i posted this very link
two days ago. Does HN now allow multiple posts of the same link?

~~~
lukevers
Yes. I'm on my phone so I can't find a link right now, but I've seen multiple
people mention that it's OK to re-post until it hits the front page. Sorry for
the lack of sources.

------
eximius
I feel like I read a similar headline with the same figure but it was 23%
among technology corporations cash...

------
known
One more reason why I endorse
[https://en.wikipedia.org/wiki/Basic_income_around_the_world](https://en.wikipedia.org/wiki/Basic_income_around_the_world)

------
stellazhiu
When I hear the phrase corporate profits, I think of the fact that they aren't
really profits at all. According to a UN report, the amount of environmental
damage the companies caused is on par in dollar terms than the profits they
made. They just exchanged something for something else, except that the global
population has to eat the losses in the form of pollution. Nothing is free in
this world unfortunately, not even corporate profits.

[http://www.theguardian.com/environment/2010/feb/18/worlds-
to...](http://www.theguardian.com/environment/2010/feb/18/worlds-top-firms-
environmental-damage)

~~~
rmah
Even hunter-gatherers have HUGE impact on the environment. They often set
fires to clear underbrush in forests (making hunting easier) or wildfires in
grasslands to drive herds of animals (again for hunting). They move around and
introduce new plants, they divert streams, they drain swamps, etc, etc. pre-
industrial man was responsible for the extinction of dozens (if not more)
species. The idea that man's impact on nature is recent is laughable. We have
been shaping our environment for tens of thousands of years.

Thing is, other animals do this too. The canonical example is beavers and
their dams. But recent detailed study of ecosystems have shown that the impact
of wolves is astounding. The same is probably true for most other species.

There is no "balance of nature". Nature is dynamic and ever changing. Man is a
part of that dynamic. Our advantage is that we are aware of our impact and can
manage it.

Wealth from industrialization allows societies to take steps to clean up
previous damage. The rivers and lakes of wealthy nations are cleaner now than
at any time in the last 100 years. The US and western europe have more forest
cover now than in 1900. The air is MUCH cleaner too. All that requires the
wealth that industrialization brings. Poor people are simply too worried about
feeding their children to demand that there are pretty forests and parks to go
camping in.

~~~
mschuster91
> Wealth from industrialization allows societies to take steps to clean up
> previous damage. The rivers and lakes of wealthy nations are cleaner now
> than at any time in the last 100 years. The US and western europe have more
> forest cover now than in 1900. The air is MUCH cleaner too.

The price of cleaned up Western countries is that the dirty stuff (mining rare
earth metals, mining for coal and iron, ore processing, lots of chemical
production processes, producing oil) shift from Western countries into poorer
countries. Africa suffers from massive pollution due to uranium mining, China
has a truckload of environmental problems, and India isn't far behind.

