Tech Firms Keep Piles of 'Foreign Cash' In US 427
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."
Re:Unintended Consequences (Score:5, Interesting)
You know, tax codes need not be written full of loopholes... You need a big helping of corruption -- sorry, lobbying -- to get the mess that the US tax code is.
Though in this case, this is not even a loophole: why would you tax differently US corporations buying US T-Bills and foreign corporations buying US T-Bills ?
The companies doing these shenanigans are not even really avoiding taxes: they are simply delaying them. If the money was to flow back to the US operation, it would be taxed. The problem is that the idiot managers think that avoiding taxes at the cost of investing less is somehow a good idea. Because some moron has decreed that having large amounts of cash is somehow a good idea for a corporation -- it's not, it is a horrble waste of resources.
And of course, it is also bad for society. But this is not really a taxation issue, it is a "people can't count and will cut their noses to spite their faces" issue. And frankly, I don't know how to solve that except by giving significantly more leverage on the board and board salaries to the shareholders.
corp tax vs capital gains (Score:5, Interesting)
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.
Holiday (Score:5, Interesting)
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.
Re:Unintended Consequences (Score:0, Interesting)
That is such a loaded and bullshit argument. By your reasoning, a Billionaire who spends $200M/year isn't carrying the same load as a guy who ears $10K/year and spends $10K/year. If you tax both at 10%, the billionaire pays $20MILLION into the system! The other asshole pays $1K. Yet you still think that is not fair? It's assholes like you who piss me off. You constantly want to fuck over someone just because they have spent more time and energy to increase their income. Yeah, lets penalize them for it. That billionaire is pouring so much more into the system, but you still aren't happy. No.. Take it all!
Fuck off, commie.
Oh, and don't bother to say billionaires don't spend money. That Oracle guy bought the largest yacht in the WORLD, so we know there is at least one doing it. I suspect others are spending money too...
Better idea - continue to tax companies (Score:2, Interesting)
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.