The Hamilton Spectator

Lower tax rate could unleash trillions

Apple’s cash pile is as big as the GDP of Finland and Jamaica, combined

- THOMAS HEATH

So much cash is raining on some U.S.-based corporatio­ns that they are at a loss over what to do with all the money.

With the $256.8 billion sitting in its bank account, Apple could comfortabl­y go out and buy Chevron, the second-largest U.S. oil company, at today’s market price without borrowing a penny. The technology giant would still have $50 billion left to buy more than 770,000 Tesla model S electric cars or about four Gerald R. Ford class aircraft carriers.

Then there’s Microsoft. The Seattle-based software maker has the second-largest stash, at $126 billion, enough to buy a $100,000 home for 1.2 million Americans.

And the blizzards of green are not limited to the tech sector.

Legendary investor Warren Buffett will preside over his annual Berkshire Hathaway shareholde­r meeting this weekend in Omaha — known as “Woodstock for Capitalist­s” — while his company sits on $86 billion in cash. That’s enough to pay for New York City’s government operations for a year.

The cash hoards are coming to the forefront as earnings season is heating up. U.S. companies are reporting mostly robust profits, and the stock market, especially technology shares, are ballooning. Some investors have cautioned that equities are frothy in light of the geopolitic­al risks such as North Korea and the political divide in the country.

A big part of the reason behind the rich corporate caches is taxes — or unpaid taxes. Apple, Microsoft and many other U.S.-based internatio­nal companies are sitting on well more than $2 trillion in cash from untaxed overseas profits, which could be brought back to the United States to be used for investment and dividends if lawmakers lower the U.S. corporate tax rate, which at 35 per cent is one of the highest in the world.

“Apple is one of the best companies in the world, and a third of their value is sitting in vaults in Switzerlan­d and Luxembourg and Dublin,” said Timothy Loughran, a finance professor at the University of Notre Dame’s Mendoza College of Business. “Isn’t that pathetic?”

The Trump administra­tion has promised to lower the corporate tax rate significan­tly. Economists and politician­s on both sides of the aisle have said a lower corporate tax rate or a tax holiday that repatriate­s money from overseas will unleash hundreds of billions of dollars, if not trillions, in dividends and business investment­s in the U.S.

“Companies have been accumulati­ng cash over many years,” said David Kass, a finance professor at the University of Maryland’s Smith School of Business. “The perverse disincenti­ves of our current corporate tax system are discouragi­ng corporatio­ns from bringing back internatio­nal profits to invest in the U.S.”

Apple chief executive Tim Cook, in an interview with The Washington Post last year, said federal and state taxes on Apple’s cash reserves, the vast majority of which are overseas, are about 40 per cent. Many U.S.-based companies leave their earnings overseas rather than pay the U.S. rate.

“We’ve said at 40 per cent, we’re not going to bring it back until there’s a fair rate,” Cook said, adding that his company is the largest U.S. taxpayer. “There’s no debate about it. It is the current tax law. It’s not a matter of being patriotic or not patriotic.

“We think it’s fine for us to pay more, because right now we’re paying nothing on that and we leave it over there,” he said. “But we — like many, many other companies do — wait for the money to come back.”

If the corporate rate is reduced or a holiday is granted, Apple, Microsoft and others could pay a special dividend, buy back shares or both. They could also make acquisitio­ns, although Apple has preferred to grow organicall­y by inventing new products such as the iPhone and iPad and investing in itself.

Apple earned $45.6 billion in profit in 2016 on revenue of $215 billion. On Tuesday, it reported second quarter profits of $11 billon on revenue of $52.9 billion and announced a 10.5 per cent increase in its dividend to $13.22 billion annually.

Apple is now the biggest-paying dividend stock in the world.

 ?? JOHN TAGGART, NEW YORK TIMES ?? Apple has accumulate­d $256.8 billion in cash.
JOHN TAGGART, NEW YORK TIMES Apple has accumulate­d $256.8 billion in cash.

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