US companies are flush with cash reserves right now and some people are mystified as to why that is happening.
“I think most CFOs would not admit they’ve hoarded too much cash,” says John Graham, finance professor at Duke University.”
“He estimates that companies have about 50 percent more cash on their balance sheets than they did 10 or 15 years ago.”
“Non-financial companies — like Microsoft and Merck — had a total of $1.6 trillion in cash at the end of 2013, according to Moody’s.”
“What you’re not seeing them do with this cash is invest in new factories and research operations, which would create jobs and fundamentally grow the business,” Johnston says.”
Why would companies be sitting on unprecedented amounts of cash instead of investing it or growing their business?
The Marketplace article hinted at one of the reasons here:
“It’s locked up overseas, mostly to avoid U.S. taxes.”
Yes, the US still has the highest corporate tax rate in the industrialized world and it doesn’t take a graduate degree in economics to realize that companies, who have a duty to maximize their profits, are incentivized to move their money offshore thanks to the Federal Government’s tax code.
But high corporate taxes are not just the only motivating factor that is causing US companies to hoard cash.
With the Obamacare employer mandate set to kick in at the end of this year, we still have a ton of uncertainty with regard to how this regulatory behemoth will affect companies’ bottom lines. Just this week we saw two different Federal courts reach different rulings on the legality of subsidies for people buying insurance on the Federal exchange in states that haven’t set up their own exchange. The ultimate decision on this will most likely have to wait for the Supreme Court and who knows when that will happen? And who knows how they will rule?
And of course the past 5 years have brought us record government spending, a Healthcare law that destroys jobs and stymies innovation/entrepreneurship, the Medical Device Tax, an overreaching NLRB, failure to build the Keystone XL pipeline, increased tax rates and the shameless crony capitalism that funneled money to failed companies headed by Obama donors.
Is it any wonder that companies are doing the prudent thing of hoarding cash in response to the massive government overreach under Obama?
And you can throw in, recently, Obama’s failures at foreign policy that has left the US living in a world that is much less safe and a southern border that is crumbling.
Don’t blame the companies for being frightened about what is coming around the corner. There is nothing in the past 5 years that would lead a company to think that we have leaders in Washington, DC that are interested in moving the country forward and creating a climate that is business friendly.
The Free Market incentivizes companies to spend their cash, invest in new opportunities, grow their business and create jobs. We don’t need a bunch of DC bureaucrats or phony “Jobs Bills” to tell companies what to do. Companies just naturally do this – That’s the beauty of the Free Market.
Until we get the Federal Government out of the way, we should become accustomed to companies hoarding more cash.