Tech companies are leading the pack in hoarding cash, with Apple, Cisco, Microsoft, Oracle and Google parent Alphabet holding $504 billion on their balance sheets.
That’s about one-third of the $1.7 trillion that U.S. companies amassed by the end of 2015, the Financial Times reports
. Much of that cash is held in foreign countries to avoid double taxation in the U.S., according to a report from credit rating company Moody’s.
“Analysts with the rating agency said that overseas cash, worth $1.2 trillion last year, would probably remain there as the U.S. election looms,” the FT says. “Companies are instead expected to deepen their reliance on debt, issuing bonds to finance shareholder returns and mergers and acquisitions.”
Apple has $216 billion in cash, 93 percent of it in other countries.
The huge concentrations of cash was accompanied by a massive increase in borrowing.
Total debt rose about $850 billion last year to $6.6 trillion, according to credit rating company Standard & Poor’s, which estimated cash levels for U.S. companies at $1.8 trillion.
The borrowing was concentrated among companies with shaky balance sheets that took advantage of the Federal Reserve’s record low interest rates of near zero percent
since 2008. The central bank cut rates in an effort to cheapen the U.S. dollar and stimulate growth as the economy shrank the most since the Great Depression.
“While the top 25 cash hoarders hold cash in excess of their obligations, the cash-to-debt ratio fell to 12 per cent for low-rated junk companies,” the FT said. “In 2010, that figure stood above 20 percent.”
Allowing companies to repatriate their foreign holdings of cash without getting taxed twice, once in another country and again in the U.S., is part of the debate over reforming the tax code.
Republican front-runner Donald Trump would end the deferral of overseas corporate income
while preserving the foreign tax credit, and would tax repatriated foreign income at 10 percent. Leading Democratic candidate Hillary Clinton’s campaign website
doesn’t mention taxes on foreign income.
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