Washington - So much cash is raining on some US based corporations that
they are at a loss on what to do with all the money.
With the $250 billion sitting in its bank account, Apple
could comfortably go out and buy Chevron, the second-largest US oil company,
at today's market price without borrowing a penny.
The technology giant would still have $50 billion left to
buy more than 700 000 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.
Read also: Apple gets more iPhone fans
The cash hoards are coming to the forefront as earnings
season is heating up. US companies are reporting mostly robust profits, and the stock market, especially
technology shares, is 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 US 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 US corporate tax rate,
which at 35 percent 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 United States.
“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 US”
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 is overseas, is about 40 percent. Many US based companies leave their earnings overseas
rather than pay the US
rate.
"We've said at 40 percent, we're not going to bring it
back until there's a fair rate," Cook said, adding that his company is the
largest US
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 its 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 it.
Apple earned $45.6 billion in profit in 2016 on revenue of
$215 billion. It paid a handsome dividend of $2.18, although the rise in share price
has cut its yield to about 1.7 percent and made the shares much less of a
bargain than they once were.
If Apple chose a special dividend, its $250 billion would
cover a $48 payment on each of its 5.2 billion shares. That is highly unlikely,
although some lump sum dividend is possible, and it could touch nearly every
American who has a retirement plan or owns taxable mutual funds.
"What is going to happen when Apple has $1 trillion in
cash?" said Loughran, pointing out that the iPhone 10 is due out this
year. "It won't be that long. What are we going to do then? The way I
think about it is the treasure of America
sitting in a vault in Switzerland.
We created $250 billion from profits and we are not using it. This is an
obvious reform that is needed."
Kass said he expects a major return by Apple to shareholders
through several vehicles, including an increase in the Apple dividend, stock
buybacks and a big one-time dividend. He said it is less likely that Apple
would make acquisitions, given the company's historic aversion to them.
Berkshire Hathaway has little in overseas exposure because
most of its profits are made in the United States. And Buffett has been
reluctant for Berkshire Hathaway to pay dividends, arguing that he can make
better use of the money by finding smart investments.
"His companies are sufficiently profitable, and he is
very patient, that his cash has accumulated over several years," Kass
said. "But if the corporate rate is lowered from 35 percent to 15, 20, 25,
it will result in additional profits for Berkshire
and just about every other American-based corporation. "If that takes
place, then Warren Buffett's pile of cash will increase much further," he
said.