Hoarders: Corporate Edition

As cash holdings at publicly traded, non-financial, non-utility corporations are now at $1.6 trillion -- and a record of nearly $5 trillion for all publicly traded companies -- one must wonder why. After all, if they invest at least some of that cash -- roughly 10% of GDP for non-financial, non-utility corporations -- the economy might regain a trajectory of higher growth. And corporations would likely hire more in the process. Is it because of uncertainty in Washington or the economy more generally? Or a higher tax rate for repatriated cash back to the U.S. from abroad that favors holding cash in foreign units? Maybe a concern about a lack of financing, now or in the future? Or is it a combination of these factors?

Researchers from the St. Louis Fed analyzed this issue extensively and considered the fact that the corporate income tax rate in the U.S. is higher than in some of the foreign markets where U.S. multinationals do business. When a U.S. multinational earns income overseas, it pays corporate income taxes in that country, but pays U.S. income taxes on the difference between U.S. taxes and foreign taxes only if those funds are repatriated back to the U.S. Thus, firms may have an incentive for not repatriating those foreign earnings....486 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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