I've long argued that big business is hoarding cash simply because it cannot think of anything to do with it. David Cay Johnston in the US shares this view and made this video:
http://www.youtube.com/watch?v=Ia4QwztEjxg&feature=player_embedded#!
As he shows, US non financial corporations have $4.8 trillion in cash - or about $16,000 for everyone in the US.
That's why they don't need tax breaks to invest - they already have all the cash they need. They just can't find anything to do with it. So they're trying to capture public revenues for private gain instead because it is the only way they can think to make money right now.
I have a better idea. Let's tax them and pout the money to use in the public sector where there is masses to be done. We can be selective - we just need to tax companies with excessive cash. But the impact on recovery and debt would be significant. And that's why this is a good idea. Why should those without suffer because those with are hiding their cash behind corporate barricades?
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i might be missing the point, but havent they already been taxed on it once, when it was generated?
Well, probably not in many cases…
And even so – holding it becomes another taxable event. So?
Your problem is?
Perhaps you should (for once) look at Luxembourg for a good working example of what I think you are proposing (I know you will find this shocking !)
They levy a “net wealth tax” on companies annually (which would include cash balances) at 0.5% – is this the sort of thing you were thinking about?
I think I’d be talking rates bigger than that…
That was the logic, I seem to recall, at least in part, of the ‘Windfall tax’ levied on the utilities in the UK in Gordon Brown’s first budget back in 1997. It was misguided and I have to say, all this proposal would lead to is the corporations spending money wildly inappropriately, for both themselves and society as a whole. I’m not sure the evident increase in Corporate Jets, Company cars, Luxury yachts and corporate outings to Sporting and other events would do too much to assist the state in tackling its deficits and shortage of revenue!
This is from fantasy land – and perfectly capable of being addressed in such a tax anyway
That is not a problem: it is already dealt with if you are on benefits, for example. If you are deemed to have got rid of money in order to qualify for benefits they simply assume you still have it,. It is amazing how difficult some things appear to be if talking about the wealthy, yet the same kinds of things present no problem at all when dealing with the poor
Sitting on amounts like that would mean they do not need banks which is a privilege denied to the smaller business man. So they have access to money with minimal interest charges. Didn’t Baron Sugar do some moaning about smaller businesses moaning 2 years ago? Surely, for smaller businesses to manage higher bank interest charge hurdles, lease of sites, and whose ratio of net product/personnel is very different from corporations would mean congratulations and recognition for their enterprising contributions to their community are in order! I will never for the life of me understand the lack of concerted outcry, from those in the know, over the unjust privileges allowed the recipients of net product while taxation just keeps on piling up on working and living costs.
Isn’t it the case that most of these corporations are also servicing significant amounts of debt and massively benefiting from tax relief on the interest payments on this debt? Wouldn’t it be to everyone’s benefit (and more sustainable in the long run) to cap the amount of interest on debt these corporations can reclaim from the state?
That is why you have thin capitalization rules.
When they work….
Um, is your taxable cash pile my prudential asset holdings and reserves against liquidity or potential fiat currency problems in a difficult world?
Maybe….but still taxable….
Perhaps those wanting to force cash rich companies to spend even if there is no apparent value should spend a bit of time reading the history of GEC. And then digest what happened to the company when it got rid of Lord Weinstock who wasn’t prepared to spend when their was no value and Lord Simpson who spent for spending sake: Just ask yourself a simple question: Where is GEC or Marcoini today and how many jobs were lost.
Daft idea all round – particularly when it isn’t your money.
The cash could always be distributed….
Now that’s a good idea
The best way is to get rid of the dis-incentives for these US companies to repatriate these profits. That means eliminating the tax deferral clauses, which can be only be done politically if the corporate tax rate is lowered at the same time, otherwise it will never go through Congress.
Once these profits are onshore, companies can either spend them or distribute them to their rightful owners, their shareholders.
The problem is not just a US one
It’s about £750 billion in the UK too
So your logic does not hold
“oinpy waty”? Your fingers are faster than your mind, Richard – they must blur!
Looks like I even forgot the spell checker
Sorry!
I don’t think I understand even having read the comments. You seem to be suggesting that if a company has cash in the bank then the government should tax it and take some. Is that in the US or the UK? How would that work? The SME I work for had about £450K in the bank at the end of the last financial year. Are you suggesting it should cough up some as tax? Because £450K represents its working capital without which we could not finance cash flow, customer credit or pay the wages. How do you differentiate between working capital, accumulation of cash towards an investment or just sitting on cash because you can’t think of anything to invest in?
Look, first let’s be clear that this tax would only apply to HQ companies
Second it would only apply to large companies
And third formulas for calculating excess cash would be needed: but they’ve been used already for debt rulings for tax, for close company apportionment rules, for capital gains considerations and more so there is nothing novel about having to set such standards again
Not that I think such a tax is likely
And if your company needed cash for commercial reasons I am sure it would not be bothered, not least by size in your case
trouble is all that would happen is your UK company would capitalise a sub in an EU country which dosent have this tax (take your pick, Netherlands, Germany, Spain, France etc) and just shift the cash into that country to avoid the tax…………..
you then have the question as to how to distinguish the capitalisation of a sub to avoid this tax, and capitalisation of a sub for normal operational purposes.
its a non starter in reality – no one pays the net wealth tax in luxembourg for example.