Corporations Hoard Cash Overseas In Anticipation Of Congress Giving Them A Huge Tax Break

Politico noted today that the overseas piles of cash being sat on by the same multinational corporations that are pushing for what’s known as a repatriation tax holiday — which would allow companies to bring overseas money back at a low tax rate — grew throughout 2011:

Overseas cash and earnings stockpiles for 12 of the United States’ biggest businesses — from Microsoft to Merck — grew by about 20 percent in 2011, as most of them lobbied hard in Washington for a “tax holiday” to bring that money home at a steep discount.

A POLITICO review of annual reports and Securities and Exchange Commission filings shows that a dozen of the most vocal corporate critics of U.S. tax policy finished 2011 with more than $455 billion in cash, investments and other earnings held by foreign subsidiaries — up from $381 billion the year earlier.

As economists have noted, this is exactly what happens when Congress grants companies one-time tax breaks to repatriate money: they hoard more money offshore in the hopes that Congress can be enticed into providing yet another holiday. As research from Northwestern showed, following a 2004 repatriation holiday, “companies rationally concluded that if they were granted one special one-time tax break, they might very well be granted another. That gave them the incentive to attribute even more of their profits to foreign operations, like a shopper waiting for an end-of-season sale.”

Last month, Apple admitted it was hoarding money offshore in the hopes that Congress would commit to another tax holiday, starting the cycle all over again. Plus, the country’s effective corporate tax rate is already at a 40-year low, while a repatriation holiday would cost the U.S. $80 billion over the next decade.