On March 20, 2013 Alana Semuels writes in the Los Angeles Times:
The economy may be improving, but many U.S. companies are still hanging on to record amounts of cash, something they usually do in times of economic turmoil.
U.S. companies held $1.45 trillion in cash in 2012, up 10% from the $1.32 trillion they held in 2011 — which at that time was a record level, according to a new report from Moody’s Investors Service.
Apple is sitting on $137 billion in cash, a fact not lost on investors, who have sued in an effort to get Apple to give some of that cash to shareholders. The iPhone maker contributes to the whopping $556 billion in cash that the technology sector holds currently. Microsoft, Cisco and Google also have big piles of cash.
Dell has also come under fire for hoarding cash, with activist investor Carl Icahn taking a big stake in the company in an effort to get more of the company’s cash to investors.
It’s not just technology companies that have a lot of cash on their books. Healthcare, pharmaceuticals, energy and consumer products companies, when added to technology, have $990 billion in cash, Moody’s says.
While investors are clamoring to get some shares of the cash, governments have another desire for companies’ giant hoards of cash. Much of it sits abroad, meaning it can’t be taxed, a frustration to a government facing its own cash flow problems. Moody’s estimates that 68 percent of the $1.32 trillion in cash is held overseas.
Starting with the business corporation, a legal entity created and sanctioned by state and federal government and judicial law, the government should provide tax incentives for full-dividend payouts to its stockholders, or alternatively dictate that from now on 100 percent of all profits be paid out fully as dividend payments to stockholders (thus, eliminating the corporate income tax), and be subject to progressive individual taxation rates during the short term. This would effectively prohibit retained earnings financing of new productive capital formation (reinvesting the corporate earnings already earned). The government could also limit debt financing by imposing some ratio formula to annual revenue under which a corporation could debt finance new productive capital formation with borrowed monies. Both retained earnings and debt financing only enhance the ownership holding value of the existing corporate ownership class and do nothing to create new owners. Thus, the rich get richer systematically and capital ownership concentration is furthered, facilitated by financing further productive capital acquisition out of the earnings of existing productive capital.
In place of retained earnings and debt financing, the government should require business corporations to issue and sell full-voting, full-dividend payout stock to more people to underwrite new productive capital formation, with the purpose of providing opportunity for new owners, both employees of corporations and non-employees, to participate in a growing economy. Of course, there needs to be a financial mechanism put in place that will guarantee loan risks; otherwise banks and lending institutions will not make the loans, and the system will continue to limit access to capital acquisition to those who already own capital—the rich. This is because “poor” people have no security or collateral, or sufficient income to pledge against the loan as security, and/or are disqualified on the grounds of either unproven unreliability or proven unreliability.
Criteria must be created to qualify the corporations subject to this policy and those corporations that qualify overseen so as to insure that their executives exercise prudent fiduciary responsibility to generate loan payback. Once the guaranteed loans are paid back, the new capital formation will continue to produce income for existing and future owners.
While it is legal to stash and hoard cash, it is unethical because concentration of capital ownership and the hoarding of earnings therefrom denies other citizens his or her pursuit of economic happiness (property) when the reality is that market-sourced income (through concentrated capital ownership) is concentrated in individuals and families who will not recycle it back through the market as payment for consumer products and services. They already have most of what they want and need so they invest their excess in new productive power, making them richer and richer through greater capital ownership. This is the source of the distributional bottleneck that makes the private property, market economy ever more dysfunctional. The symptoms of dysfunction are capital ownership concentration and inadequate consumer demand, the effects of which translate into poverty and economic insecurity for the 99 percent majority of people who depend entirely on wages from their labor or welfare and cannot survive more than a week or two without a paycheck. The production side of the economy is under-nourished and hobbled as a result.
Support the Capital Homestead Act athttp://www.cesj.org/homestead/index.htm andhttp://www.cesj.org/homestead/summary-cha.htm
http://www.latimes.com/business/money/la-fi-mo-cash-pile-20130320,0,7486073.story
