America is shortchanging itself by refusing to tax corporate cash. To explain our present system taxes income which is usually a small portion of the money a corporation makes.
Apple (NASDAQ: AAPL); for example, reported a “net income” of $11.519 billion and $70.970 billion in cash and short-term investments on June 30, 2018. Additionally, Alphabet (NASDAQ: GOOG); or Google, recorded a net income of $3.195 billion and cash and short term investments of $102.254 billion on the same day.
Importantly, America’s largest bank JPMorgan Chase (NYSE: JPM) reported $405.1 billion in cash and equivalents on June 30, 2018. However, Chase reported a net income of $7.88 billion on the same day.
Surprisingly, Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) reported $12.011 billion in “net income” and $64.561 billion in cash and equivalents for 2nd Quarter 2018. Astoundingly, Microsoft (NASDAQ: MSFT) reported $133.768 billion in cash and short-term investments and $8.873 billion in net income on June 30, 2018.
We Must Tax Corporate Cash Now
Obviously, corporate America is getting a huge tax break because we refuse to tax corporate cash.
Corporations give themselves a tax break by sticking money in the bank. That is bad for the economy because money is not being sent on salaries, expansion, or purchase of supplies, equipment, and raw materials.
It shortchanges the government because it taxes only a tiny portion of a company’s cash. For example, Amazon (NASDAQ: AMZN) reported a net income of $3.033 billion for 2017.
Therefore, at the current rate of 21% Amazon could pay $639.930 million in income taxes. On the other had Amazon, would pay $1.01616 billion in federal income taxes at the previous rate of 35%.
In contrast, Uncle Sam could collect $1.5493 billion from a 5% tax on Amazon’s cash. To clarify, Amazon recorded cash and short-term investments of $30.986 billion on June 30, 2018.
Why we should Tax Corporate Cash
Taxing corporate cash makes sense because money socked away in a bank account does the economy little good. In particular, that money is not being used to build factories or put people to work.
We must discourage cash hoarding because it gives a few corporations an unfair advantage. To demonstrate, Amazon is moving into the grocery business through its Amazon Go cashier-less store. Amazon could spend $3 billion to open 3,000 Go stores because of the $30.986 billion in cash it has accumulated $30.986 billion in cash.
Conversely, America’s largest grocer Kroger (NYSE: KR); which Go threatens, reported $361 million in cash and short-term investments on August 18, 2018. Markedly, Kroger employed 443,000 people; many of them union workers, in 2017.
Therefore, corporate cash threatens jobs by enabling companies to automate. Beyond that there is fairness; Amazon has an unfair advantage because of the cash.
How to Tax Corporate Cash
My suggestion is to tax corporate cash at a rate of 5%, but levy that tax quarterly.
Under that regime, Amazon could pay around $1 billion a quarter or around $4 billion a year. Specifically, Amazon reported $27.05 billion in cash and short-term investments on June 30, 2018. Therefore at a 5% tax rate Amazon could pay $1.3525 billion on that cash.
Moreover, I suggest charging a tax of 10% on corporate cash hoards over $100 billion. For instance, JPMorgan Chase could pay $35.51 billion in taxes on its $405.1 billion cash hoard. I arrived at this number by multiplying $305.1 times 10% and adding $5 billion for the first $100 billion in cash.
Under this system, companies will keep the vast of their cash but they will have a strong incentive to spend it. Obviously, the spending will act as an economic stimulus.
Why America Needs to Tax Corporate Cash
Best of all, a cash tax will reward corporations for growing their businesses and penalize companies for hoarding cash.
A great incentive to get corporations to go along with such a system will be to eliminate the corporate income tax completely. Since the income tax only covers a small percentage of a corporation’s money, it raises limited amounts of money.
America needs to tax corporate cash because tax revenues are falling and the federal deficit is growing. For example, tax receipts fell by 7% in June 2018, because of last year’s Republican tax cuts, the U.S. Treasury Department admits.
Moreover, the Treasury Department projects the Federal Deficit to rise to $750 billion in 2018. Additionally, the White House forecasts the deficit will grow to 5% of the US economy in 2019, NPR reports.
Uncle Sam needs more revenue and a corporate cash tax is an obvious way to get it. Americans need to ask why their leaders are not pursuing new sources of revenue like the corporate cash tax.