by David Cay Johnston
IRS data suggests that, globally, U.S. nonfinancial companies hold at least three times more cash and other liquid assets than the Federal Reserve reports, idle money that could be creating jobs, funding dividends or even paying a stiff federal penalty tax for hoarding corporate cash.
The Fed’s latest Flow of Funds report showed that U.S. nonfinancial companies held $1.7 trillion in liquid assets at the end of March. But newly released IRS figures show that in 2009 these companies held $4.8 trillion in liquid assets, which equals $5.1 trillion in today’s dollars, triple the Fed figure.
Why the huge gap?
The Fed gets its data from the IRS, but only measures the flow of funds in the domestic economy. The IRS reports the worldwide holdings of U.S. companies, which I think is the more revealing measure.
From the companies’ point of view, it makes perfect sense these days to hoard cash.
Let’s get some perspective on these gigantic figures, all measured in today’s dollars.
The 2009 cash reported to the IRS equaled America’s entire economic output that year from New Year’s Day through May Day.
This cash pool came to $16,700 for every man, woman and child in the United States, a 53 percent real increase from 2004, my calculations from IRS data show.
Looked at yet another way, these companies had 11.3 percent of their assets in cash, or enough to pay their 2009 corporate income tax bills, which amounted to $148 billion, more than 34 times over.
In short, U.S. companies hold vastly more cash than is needed to finance their operations.
For investors, companies holding 11.3 percent of their assets in cash lowers returns. Did you buy shares of American Widget so executives could park profits in savings accounts?
For workers, idle cash means idle hands and minds. With one in five Americans unemployed or underemployed, and real median wages in 2010 back down to the level of 1999, this is no time for capital to go on an extended holiday.
For taxpayers, untaxed profits subtly reduce corporate tax burdens and increase the tax burden on individuals. Because taxes owed on offshore profits are not adjusted for inflation, they depreciate at the rate of inflation. That means a double whammy for taxpayers as government pays interest on money it borrows while its accounts receivable from multinational corporations lose value. [MORE]