$1.7 trillion in 'foreign' corporate cash held in U.S. banks

When a corporation holds its money overseas, you'd expect it to keep its cash, well, overseas. But a report in the Wall Street Journal reveals that many large American companies, including Google and Microsoft, have large foreign cash reserves in U.S. financial institutions. 

Kate Linebaugh reported the story, and explains how it works. 

"My headquarters might be in Connecticut, but I have another operation in Ireland," she says. "And that operation in Ireland keeps their money at a bank in New York."

And Linebaugh's imaginary scenario isn't rare. American banks and securities hold $1.7 trillion of foreign corporate cash. Why? Taxes, of course.

"Any income that any U.S. company earns around the world, if they bring it back to the U.S., they have to pay a 35 percent tax on it," Linebaugh says. "If they say, we need this money for our foreign operation, they don't have to pay the tax."

That's despite the fact that the money is in U.S. banks. Neither the government nor corporations are happy with the tax code as it stands now. Some members of Congress want additional revenue from companies, who in turn want to be able to more freely spend foreign cash that's in the U.S.

"The corporate tax system as its set up right now is not working for anyone," Linebaugh says.

One example she cites: Microsoft. The company keeps 93 percent of its "foreign cash" in the U.S., totaling $53.94 billion.

"It's referred to as trapped cash," Linebaugh says. "What to do with this $1.7 trillion that is trapped overseas will be front and center."

Not quite overseas though, right?

"Sorry," Linebaugh corrected herself. "$1.7 trillion held by their foreign subsidiaries right here, down the street, at the bank."

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
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If we said that we'd tax US companies at US rates regardless of where the subsidiary resided, it would result in situations where the subsidiary would get taxed twice, once by the country it's residing in, and once by the US. On the other hand, if we let the local countries taxes count towards the US taxes (the US would just tax the difference) there'd be a lot less reason for companies to keep the money aboard.

It is interesting that USA corporations are not taxed on their foreign income, even if they park it in the USA. However American citizens are taxed on their world wide income even if they are working and living abroad. These same corporations can contribute unlimited amounts of money to superpacs in American political campaigns. The same right, the supreme court says is the right of every tax paying American citizen has. Such convoluted laws and thinking explains much of the current economic problems of the USA.

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