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Tech Firms Keep Piles of 'Foreign Cash' In US
theodp writes "There's a funny thing about the estimated $1.7 trillion that American companies say they have indefinitely invested overseas,' reports the WSJ's Kate Linebaugh (reg. or the old Google trick). 'A lot of it is actually sitting right here at home.' And if tech companies like Google and Microsoft want to keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities, Linebaugh explains, this money is still overseas in the eyes of the IRS and isn't taxed as long as it doesn't flow back to the U.S. parent company. Helping corporations avoid the need to tap their foreign-held cash are low interest rates at home, which have allowed U.S. companies to borrow cheaply. Oracle, for instance, raised $5 billion last year, paying an interest rate roughly two-thirds of a percentage point above the low post-crash Treasury yield, about 2.5% at the time (by contrast, grad students and parents pay 6.8%-7.9% for Federal student loans). Were the funds it manages to keep in the hands of its foreign subsidiaries brought home and subjected to U.S. income tax, Oracle estimated it could owe Uncle Sam about $6.3 billion."
time for a outsouring tax?
Be for long we will need a way to pay for all people in the USA not working.
Raise taxes and those taxed will find legals ways to avoid them. Ways that the morons in Congress never anticipated.
To paraphrase Princess Leia, "The more you tighten your grip, Harry, the more tax dollars will slip through your fingers."
When Fascism comes to America, it will call itself Anti-Fascism, and tell you to give up your guns.
It sounds to me like they are using their foreign profits like a 401k, keeping them in accessible until they need them, and then paying tax on them when they do.
I don't have a problem with Oracle paying more taxes. The "fix" though seems to be that in charging them for any foreign assets on shore that we simply create the pressure that causes them to leave their foreign profits overseas. By letting them use these profits as collateral for loans, we get billions of extra dollars sitting on our banks allowing those banks to give out cheaper loans to the rest of us.
Whether or not Oracle deserves a tax-deferred-savings account like mine, the fix of pushing the money back overseas, seems worse than the illness.
the interest is tax deductible making it like free money
why pay employees from your bank account when you can borrow short term, pay the low interest, deduct interest from your taxes and just roll the notes over into new notes every year or so?
retail companies do this to pay for the product you see on the shelves during the holidays
and its also good for use peons since the money goes into money market accounts and back to the regular folk. not like banks are lending their own money either
There is a good documentary on HULU right now that covers this called "We're not broke." This entire problem is a result of actions taken in the 70's. Our government was originally hijacked by banks first, and subsequently many corporations. What this makes me wonder is that if this cash was allowed to "flow back" at once... would it have an measure of inflation with it?
Don't raise taxes and some other country drops theirs and those taxed will find legal ways to move their burden over there.
Drop taxes, and some other country, who doesn't spend as much on, say, the armed forces, will cut their taxes and those taxed will find legal ways to move their burden over there.
Zero taxes and you can't afford a police force and therefore those with money will leave for some place that can secure their wealth.
When will the wealthy stop leeching off the working classes?
Science and technology is the only way to make the pie bigger (and it doesn't do this by paying taxes), if any firm deserves a break it's the tech firms.
It's up to Congress:
* Make the law match the "talk" and give companies incentives to REALLY keep their money parked overseas.
* Keep things the way they are.
* Try to "crack down" and watch the companies see what other legal tricks they can use.
The "ultimate" legal maneuver to "outwit the IRS" is to move the International HQ overseas and make the US company a subsidiary of the overseas-based company, and make sure the US company never "handles" money that isn't already somehow tied to American operations. If Congress wants this, they can pass laws that will make this option very attractive.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
Why would you compare the interest rate that Oracle can borrow money at with an average college student whose family does not have enough funds to pay for college themselves? Oracle has over $30 billion in cash reserves, so they are a much safer bet to lend $5 billion than a college student who can't scrape together $100k.
Do people honestly think banks should lend money with rates based on how sympathetic the borrower is?
-- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
I've been saying for years that we need to go back to Ronald Reagan's 1986 Tax Reform act. We could tax capital gains as regualr income, and do away with corporate tax altogether. That would eliminate the entire discussion. All sides of the debate would have to STFU since they got what they wanted. And there wouldn't be any more of this off-shoring and subsidiaries for tax purposes. It wouldn't matter how CxO's take their pay, because they will still be taxed - the same as everyone else. It wouldn't matter any more how the books get moved around. And the Occupy types wouldn't have anything more to bitch about. The only ones who would get truly shafted would be the greedy.
C|N>K
The main reason corporation are doing this is that they are hoping for an overseas earnings tax holiday.
Unfortunately it's not a wish upon a star. Such a holiday has been granted before, in 2004. So it is a perfectly logical strategy to hold out as long as possible in hopes of getting another cookie.
There is actual evidence that the last tax holiday led to job cuts as well.
Considering that we are in a liquidity trap now there is certainly no rational expectation that a repatriation tax holiday will benefit anyone except perhaps the stockholders of these corporations.
Such tax holidays are extremely bad policy for a variety of reasons. Which means I guess it's going to happen.
In reality what is needed is an overhaul of the tax system which includes reducing the top rate and elimination of many loopholes. Of course this is beyond the ability of our completely dysfunctional Congress. But the benefits to the economy would be massive.
why aren't they paying 40% of the taxes?
As long as we have the current system, there will be loopholes like this.
Python: 'And then suddenly you have a language which says "we're all stuck with whatever the whiniest coder wants".'
We need a use it or lose it tax.
Presumably, there are many non-US companies operating in the US, who face a similar dilemma - they have funds in the US which it would be expensive to repatriate. Although the parent countries of those companies are missing out on tax, the expense of repatriation mean that it's more likely those companies will spend or invest those dollars in the US economy. Which seems to me like a good thing - if your company has made a profit out of consumers of a particular country, a mechanism that encourages investment or spending which benefits those people, and the company itself, seems like a win on two fronts.
At any rate, it seems like a better balance than either extreme - letting foreign companies suck money out of a country without any brakes whatsoever, or at the other end of the scale, banning foreign investment completely.
where are they when people point these massive corporate welfare entitlements?
Not really. We have a dog's breakfast of programs that provide food subsidies, housing subsidies, subsidies for mothers with children they can't support, free cell phones, unemployment benefits, medical subsides, and disability subsidies.
The system is so crazy that we have parents actually encouraging their kids to BE crazy so they can receive more money.
But by gaming the system a person can do pretty well. A single mother with two kids making $29,000/year receives net income and benefits of over $57,000. Earning more income actually results in a net decrease in total income+benefits -- this is the "welfare cliff".
Whether or not Oracle deserves a tax-deferred-savings account like mine, the fix of pushing the money back overseas, seems worse than the illness.
Yes but this calm, rational, mature, objective point of view doesn't provide the visceral "satisfaction" of punishing people who are easily demonized and easy (often with reason) to hate. So politically, it doesn't sell very well. It doesn't appeal at a base level to the masses who vote emotionally instead of taking the time to recognize certain cause-and-effect relationships.
Politics should be about how to best manage a nation, not what it's become now, which is how to ineffectively resolve one's discontentment with life by trusting liars who don't give a damn about you.
It is a miracle that curiosity survives formal education. - Einstein
People try to maximize their well being. People respond to incentives. If you give them perverse incentives, they respond perversely. Companies, in that respect, act like people, except that it's the executives and board of directors working to maximize their and their shareholders' well being. So who is surprised when companies respond perversely to perverse incentives? If you want companies to act sanely about money, you have to stop forcing them to comply with insane rules. (The several suggestions in this comment section to add more insane rules would just result in a different insane corporate behavior.)
-- Two men say they're Jesus. One of them must be wrong. - Dire Straits
Seems like what the US needs is an alternative minimum tax for corporations doing business in the states. If I have to pay, so should they.
Are a bit of a scam. 6.8% in today's market is ridiculous.
I just refinanced my wife's loans 2 percentage points lower with a home equity loan. The interest is tax deductible now, too.
Rich people consume much less than poor people. They wouldn't be rich if they spent their money. Most money is invested to make more money.
We're already keeping profits from foreign subsidiaries (profits that have already been taxed in the jusrisdiction they were generated, something the US does that few if any other countries do) out of our economy. Now we're going to chase it out of our banks too?
It's stupid in the practical sense - in that they'd just park the money somewhere else. And it's stupid in the moral sense - that indignant people see no problem with and have no shame advocating as much confiscation as possible of something belonging to someone else.
Obama suckles at the corporate teat with the worse of the Republicans against whom he rails. That man should never have been re-elected but for the poor choice the Republicans put forward. Toss the POTUS a banana as a reward from the zookeeper.
[Oracle pays] about 2.5% at the time (by contrast, grad students and parents pay 6.8%-7.9% for Federal student loans).
Why bother to add this? Oracle is a very credit worthy company with large assets. In contrast, student loans have a very high default rate and are risky to lenders (or the government if they assure them).
Obviously it was added to try to create some outrage where none rightly exists.
Companies like Apple who hoard Billions in cash, who cripple our economy, because they are waiting for a tax holiday to bring their illegal moneys back into the country.
The United States is a plutocracy. The citizens want it, approve it, and support it. Stop complaining.
"Stealing" imaginary property, doing copies for no profit or private use: Lawsuits for hundreds to millons of dollars, or years in prison
Actually stealing billons of dollars in taxes: no consequences
Putting world economy at stake: bailout
Clearly we got it wrong. Stealing is not the wrong thing, just doing in small to zero scale does.
the interest is tax deductible making it like free money
Not precisely though the tax shield can make some investments possible/attractive that might otherwise not be feasible. What makes it close to free money is the fact that interest rates are so low. The deducti
why pay employees from your bank account when you can borrow short term, pay the low interest, deduct interest from your taxes and just roll the notes over into new notes every year or so?
There are two big reasons why you might not do this. The first and most important is cash flow. It's fine to borrow like you describe but if you have an interruption in cash flow and cannot repay your obligations then you have killed the business. For a company like Oracle or General Electric this is probably not a problem unless they get carried away. For smaller companies like mine cash flow is a huge issue and it has the potential to be a big problem. The second reason why not is opportunity cost. You are basically making a bet that by borrowing the cash that you be able to invest the cash that would otherwise have gone to payroll into something that will result in a greater return than the cost of interest + inflation. It's a reasonable thing to do but you can't simply assume the return will be greater by borrowing. In tough economic times even a 1-2% return on investment might be a bridge too far, especially in low margin businesses like Walmart.
why would you tax differently US corporations buying US T-Bills and foreign corporations buying US T-Bills ?
Because you have less/no legal authority over the foreign corporations. I should have thought that was obvious. Good luck collecting taxes for a foreign corporation that does no business in the USA.
The problem is that the idiot managers think that avoiding taxes at the cost of investing less is somehow a good idea.
It is a good idea to keep the cash parked overseas if the return on the investment is less than the cost of the taxes. Taxes on repatriated earnings effectively raise the cost of capital and reduce the number of available investment opportunities for that cash with a net present value greater than zero. If you are taxed at 20% then your investment needs to have a return of greater than 20% to justify repatriating the earnings. Those aren't quite so easy to find as you seem to imagine.
Not quite. They put the money from FOREIGN operations in US banks. (And money from US sales in foreign banks) Then the papa company borrows money for US operations against the foreign accounts... At minimal interest.
Rich people tend to have more expensive cars, houses, etc. Maybe multiples of them when the poor only have one or none. Rich people tend to buy luxury goods where the poor don't. Rich people also consume more services: they need bankers to look after all their money, they need IT guys, private tutors, doctors, cleaners, chauffeurs, etc.
But here's the caveat: the rich has MUCH more bargaining power in deciding how much those things will cost them. They're the job creators after all. They have a huge say in wages. They can write things off - "consumption" suddenly isn't counted as consumption anymore, and not get taxed.
If the rich doesn't like the price (cost of hiring somebody to perform a service or make a product), they can walk away and say "I'll find somebody who will do it cheaper"
Or the rich starts their own company, and they basically pay themselves with their product/service. I mean, there is such a thing as employee pricing right? Now imagine you aren't just an employee, but the owner. Would it be right to tax Bill Gates for consuming a copy of Windows? You might say yes, but the rich will definitely argue against that.
Better yet, the rich figure out how to replace you entirely with a machine. That service or product simply cease to be a "taxable" thing.
Fair tax in theory works... if society accepts the socialist caste system in which it will create. You'll have:
1) The rich class, who controls the means of production, and thus exert huge influence on prices and thus their own tax burden. They decide what gets made or not made, what services get rendered or not. They decide which people they will hire and be elevated to...
2) ...middle class. The service class, a small set of people deemed "useful" by the rich to perform services for said rich. But if they cease to be useful, they'll be tossed back down to...
3) ...the lower class. These are the people the rich didn't pick to be their lawyers, bankers, etc (of course not everybody can become a lawyer or banker). They won't really starve (thanks to the "prebate", socialist welfare payments in this Fair Tax system), but it'll be almost impossible for them to rise up on their own - they lack the capital to build or invest anything. They'll have to appeal to the rich and hope one of them picks them to become their middle class servant.
1) Policies that allow children to starve in the streets of one of the wealthiest nations of the world are uncompassionate and unconscionable.
2) Policies that have a net effect of subsidizing the production of babies within the poor class are unscalable and unmaintainable in the long run.
Both of these facts are true, and the most natural responses to them directly contradict one another. You cannot address the pain recognized by one fact without causing the pain of the other.
People tend to harp on one or the other, and each camp has a perfectly justifiable criticism of the other camp. Proponents of both camps will feel completely justified by sound logic, and they are both right.
Any possible middle ground will involve some kind of egregious injustice. There is no way to resolve this situation without leaving someone very justifiably pissed off. You can let the poor starve (watch them turn to crime and feel justified by it), you can give them all the free money they need (watch the earners scream about having what they have earned taken from them to feed parasites, justifiably, and watch the population among the poor explode to unmaintainable levels), you can impose limitations on reproductive rights (watch EVERYONE scream about this and enforcement will be a nightmare), you can claim the babies as wards of the state (hah...yeah that will fly). Maybe you have some other ideas? Post them, so the fact that they will not work can be exposed.
There are a lot of carrots that end up in Red States - especially if you include the heavily subsidized 'family farmers' (a few of which reside on Park Place). It ain't all just Reagan's Welfare Queens.
Better idea don't tax companies, tax people. I don't know who thought taxing companies was a good idea, I haven't heard a single reason why we should be doing it and all it does is worsen an already terrifying labor region issue.
Let me guess. Another Libertarian nut case.
This is why companies should be taxed. If I have learned anything in life, I have learned that rich people are really really good at protecting their money. This is why CEOs continue to be paid exorbitant fees to run companies and why sometimes even grossly incompetent ones get paid rather well to leave jobs they screwed up. If companies stopped being taxed, then rich people and their accountants and lawyers would figure out some way that right now nobody has ever considered that could shift all of their income to the company and thus be tax free while they enjoy the benefits of having 100% control of the money with none of the tax issues. If you don't believe that would happen, then you are clearly not paying attention to the current state of things.
The things that make up civilization-roads, schools, infrastructure, economic development, etc.-should largely be paid for through local taxes. I have no problem paying local taxes. And if my county or state start wasting too much money, I can always move. But to present federal taxes as if they had anything to do with that is a bald faced lie.
So they make more money, it's actually in the US, but they play accounting games to avoid paying taxes for what they get from being in the US.
Lovely. And all the Republicans who go on about loopholes... I'm sure they want to close this one.
Right.
Odd that the comments went off to social programs in the US, like welfare and unemployment - how about *this* "entitlement" program? I understand it's an open scandal in Greece, how the wealthy avoid paying *any* taxes... but this isn't the same thing, no, no, there's nothing here, move along.
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