American corporations are holding more cash on their balance sheets than at any time in nearly a half century, as they continue to save instead of investing or hiring workers, according to a Federal Reserve report released Friday. At the same time, Republican presidential candidates and corporate leaders continue to lobby for lower corporate tax rates and huge corporate tax giveaways under the guise that they will lead to higher rates of job creation.
According to the report, non-financial corporations held more than $2 trillion in cashat the end of June, a $88 billion jump since the end of March. Cash holdings made up 7.1 percent of all company assets, the highest level since 1963.
And the report doesn’t even include foreign cash holdings, though 11 companies — including Apple, Microsoft, and Cisco — have foreign cash holdings of at least $10 billion. Those funds, the corporations argue, could be used to spur hiring and job growth domestically through tax breaks like a repatriation tax holiday, as one executive told the Wall Street Journal:
But Jeff Agosta, chief financial officer of Devon Energy Corp., said that whatever companies use the money for—such as investments, dividend payments or stock buybacks—the U.S. would benefit by having the funds come home.
“That’s money that’s going to be put into productive use in the United States,” Mr. Agosta said.
Evidence from past repatriation tax holidays, in which corporations can bring foreign cash holdings back to the U.S. at lower tax rates, shows that companies wouldn’t use the funds to spur job growth. As one of the members on President Bush’s Council of Economic Advisers said, the 2004 repatriation holiday “didn’t accomplish the stated goals of bringing jobs and investment to the U.S.” After the holiday ended, corporations cut thousands of jobs and stashed more money overseas in anticipation of a future holiday — a perhaps prescient move, as multiple Republican presidential candidates have endorsed an even bigger tax holiday than the corporations have asked for.
Meanwhile, Republican candidates continue to endorse drastic reductions in the corporate tax rate, even as American corporations pay one of the lowest effective tax rates in the developed world.
Those who favor lower corporate tax rates and bigger giveaways continue to argue more cash on hand will equal more jobs created. The Fed’s latest report, however, is more evidence that equation simply doesn’t work out.