US companies are hoarding $2.5 trillion in cash overseas Jeff Cox Tuesday, 20 Sep 2016 The overseas cash stash for U.S. companies continues to swell, with only scant hope of it being brought back home as Washington continues to debate repatriation.
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. The total is equivalent to nearly 14 percent of total U.S. gross domestic product.
Though the money pile could give a nice boost to the slow-growth domestic economy, corporate heads have been locked in a battle with the government over bringing the money home. The U.S. has the world's highest corporate tax rate at 35 percent, and under current law any cash brought home would be taxed at that rate.
A number of high-profile companies have come under fire for "inversions" — deals where a U.S. company buys a firm in a lower-tax nation and switches its domicile to escape high U.S. levies.
"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," Capital Economics U.S. economist Andrew Hunter said in a note to clients. "This vast pile of foreign cash could provide a substantial boost to GDP if it was ever brought home."
At a sector level, tech and pharmaceutical companies are sitting on the lion's share of the overseas cash.
Microsoft and General Electric have more than $100 billion each abroad, while Apple is holding $91.5 billion and Pfizer has close to $80 billion. The companies did not respond to requests for comment.
Various proposals have been floated on giving companies a break for repatriation. The last time Washington lawmakers were able to make a deal was in 2004.
President Barack Obama last year proposed a one-time 14 percent tax on overseas cash, with a 19 percent levy on future earnings. Republican presidential nominee Donald Trump wants to cut all corporate taxes to 15 percent, with foreign earnings taxed at 10 percent. Democrat Hillary Clinton has not been as specific, though she has hinted at being open to a repatriation deal.
"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."
That pessimism over the effect of repatriated cash is rooted in a few reasons: Following the last deal, corporations used much of the money to reward shareholders with dividends and stock buybacks, and cash is hardly in short supply for companies.
Though the amount being held overseas now tops the U.S. total, companies are still holding $1.94 trillion in cash domestically, the highest in two years, according to the latest Federal Reserve data. That's part of a larger story of trillions in money lying fallow around the country — zero-yielding money markets are holding $2.66 trillion in investor cash, and banks are storing $2.15 trillion in excess reserves at the Fed.
In just those four categories, that's some $9.25 trillion in available cash doing nothing.
"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.
