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Capital Economics: US Companies 'Hoarding' a Record $2.5 Trillion Overseas

Image: Capital Economics: US Companies 'Hoarding' a Record $2.5 Trillion Overseas

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By    |   Wednesday, 21 Sep 2016 08:20 AM

 


American companies are holding $2.5 trillion abroad, an increase of nearly 20 percent over the past two years, according to the latest calculations from forecaster Capital Economics, CNBC reports.

The total is equivalent to nearly 14 percent of total U.S. gross domestic product.

"This vast pile of foreign cash could provide a substantial boost to GDP (gross domestic product) if it was ever brought home. But the chances of this happening under the current tax system are very low," Andrew Hunter, a U.S. economist at the firm, said in a new note, Business Insider reported.

Two years ago, the company estimated that the stock of earnings held abroad by U.S. corporations had increased six-fold over the previous decade, to a total of $2.1 trillion. It now states that it had risen to $2.5 trillion by the end of last year.

"The substantial tax bill most firms would face if they attempted to bring this cash home, however, means that it is still very unlikely to ever be repatriated under the current system,” Hunter said. "This vast pile of foreign cash could provide a substantial boost to GDP if it was ever brought home."

"The U.S. requires firms to pay the full 35 percent corporate tax rate – the highest in the developed world – on all worldwide income, but only if those funds are repatriated. This gives firms a clear incentive to keep earnings overseas," Hunter said.


"That said, the prospect of a deal being agreed to reform the corporate tax system is no longer as remote as it once was," he added, referring to presidential candidates Hillary Clinton and Donald Trump.

Not all US firms are taking part in the shift, however, as the foreign cash is concentrated, for the most part, in a small group of firms in a small group of sectors.


"Holdings of foreign cash are increasingly concentrated among a few large firms. Although Apple now has $91.5bn of earnings permanently reinvested overseas, it is not the biggest holder — General Electric and Microsoft have more than $100 billion each," he wrote.


"In addition, a disproportionate share of the total is still accounted for by firms in the technology and pharmaceutical sectors. Pharmaceutical firms now hold around 27% of the total, while the share accounted for by IT firms has risen to almost 40%, up from just 12% back in 2002," he wrote.

"The prospect of a deal being agreed to reform the corporate tax system is no longer as remote as it once was," Hunter wrote. "With corporate tax reform on the agenda of both parties, the odds are increasing that some of the foreign cash will eventually be repatriated. But this is unlikely to give a major boost to the domestic economy," he wrote.

"Even if the cash was brought home, it would be unlikely to lead to the surge in investment that many hope for. After all, most firms already have large reserves of domestic cash and face record-low borrowing costs," Hunter said, CNBC reported.

For his part, President Barack Obama recently said international tax policies should be better coordinated among countries to avoid problems, following the European Union decision that would require Apple Inc. to pay billions of dollars in back taxes.

“It’s in the interest of all countries, whether they’re developed countries or developing countries, to put a stop to this,” Obama told reporters at the close of the G-20 summit in Hangzhou, China. He was speaking for the first time about the decision that could cost Apple, a U.S.-based company, as much as 13 billion euros ($14.5 billion).

“There’s always a danger that if one of us acts internationally” it may impact our ability to collect taxes from the same company, Obama said. If a company pays into Europe, the U.S. Treasury “is shortchanged.”

(Newsmax wire services contributed to this report).

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American companies are holding $2.5 trillion abroad, an increase of nearly 20 percent over the past two years, according to the latest calculations from forecaster Capital Economics, CNBC reports.The total is equivalent to nearly 14 percent of total U.S. gross domestic...
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2016-20-21
Wednesday, 21 Sep 2016 08:20 AM
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