Friday, February 18, 2011

US Companies Keep Trillions In Cash Abroad To Avoid America's High Corporate Taxes

From "Why Investors Can't Get More Cash Out of U.S. Companies" in The Wall Street Journal by Jason Zweig:
like many purportedly cash-rich companies, Microsoft can't bring home much of its cash without writing a fat check to the Internal Revenue Service.

Politicians have been carping about the more than $2 trillion in cash sitting idle in corporate coffers even as unemployment remains high. But much of that cash isn't in the U.S.; it is abroad. And it isn't likely to come back home unless U.S. tax laws change.
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U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries. They get a credit for any taxes paid to foreign governments—but, since the corporate-tax rate in the U.S. is one of the world's highest, most companies are in no rush to bring the money back onshore. By keeping those earnings abroad, U.S. companies can indefinitely defer their day of reckoning with the IRS.
Read the complete article here.

Lowering or eliminating the corporate tax would give US companies an incentive to bring home the foreign cash to use for domestic investments or dividends to shareholders. Either action would promote economic growth and employment.

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