Tags: Yglesias | Verizon | Vodafone | bond

Slate's Yglesias: Corporate America Has Given Up on Investing

By Michael Kling   |   Thursday, 12 Sep 2013 08:02 AM

Verizon's record-setting bond sale sure sounds exciting. After all, Verizon has sold $49 billion in bonds to help finance the $130 billion acquisition of its wireless business, which will be the largest corporate acquisition since 2000 and the third largest ever.

But, according to Slate business editor Matthew Yglesias, it highlights the "excruciating malaise in corporate America that continues to hold back the national economy."

Verizon will use the financing to buy out British wireless company Vodafone, which owns 45 percent of Verizon Wireless. Most consumers won't notice any change. The deal only means the companies agreed on a price and found how to minimize their taxes as much as possible.

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Instead of indulging in "financial shenanigans," big corporations should be financing new investments that lead to new products, create new jobs and make corporate America more competitive, Yglesias asserts.

It's much like Apple's bond sale, the second largest corporate debt issuance. In that deal, Apple avoided a tax liability by borrowing money to pay dividends instead of simply drawing on its enormous cash horde.

"These kinds of financial high jinks are inherent to the business world," Yglesias says. But it’s depressing and disturbing that this is what the biggest deals and most aggressive fundraising in corporate America look like today."

Venture capital investments in startups attracts attention, but corporate investment has faded to just 4 percent of GDP, he notes, while corporate profits have soared to 12 percent of GDP.

"Getting back to a healthier economy is going to take better public policy," he argues. "But it will also take a bolder, more imaginative executive class that’s willing to tap financial markets to buy in to big ideas and big investments, rather than just buying up their own stock."

U.K.-based Vodafone will likely rake in tens of billions in profits and pay just $5 billion of taxes to the United States and nothing to Britain by setting up the sale as a complex two-step transaction, The Wall Street Journal reports.

The low tax bill is attracting scrutiny in the United Kingdom.

Margaret Hodge, chair of Parliament’s public affairs committee, tells The Guardian, that HM Revenue and Customs, the U.K. tax authority, should study Vodafone's tax arrangement.

HM Revenue and Customs "must begin an absolutely thorough investigation to make sure that U.K. taxpayers receive the maximum to which they are entitled,” she proclaims. "If there is a flaw in the law, it needs to be addressed by Treasury ministers urgently."

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