MTP panelists were discussing businesses sitting on $2 trillion in cash...

[kentuck]

...and how to get them to invest it?

Do they have to pay taxes on this $2 trillion dollars? Can they just let it sit there forever if they want? Is that the way the capitalist system is supposed to work?

It seems to me there should be some type of requirement to re-invest or be taxed at a higher rate? No doubt, it shows that companies will not invest if there is no demand. IF consumers do not have the cash to buy stuff, then there is no demand. They have sucked us dry. They have kept wages low for 30 years and there is no more easy credit so the entire economy is locked up. All the cream has risen to the top of the churn and it belongs to about 1% of the people.

How do you get them to invest $2 trillion in cash? Obviously, they don't need any taxbreaks. They got more money than they know what to do with...

[DJ13]

1. there should be some type of requirement to re-invest or be taxed

Thats why income taxes on corporations used to be so high.

It used to be that they could only shelter their mounting profits by reinvesting in their business for tax savings.

That was one of the primary drivers of growth that led to the formation of the middle class in the mid 20th century.

[Gidney N Cloyd]

22. When I was in high school in the 70's they taught us that in basic Econ class.

But not just to shelter against taxes, instead of pocketing the profits you reinvested in the business to grow the business-- and the goal of growing the business seemed to go without saying.

[Cool Logic]

2. "It seems to me there should be some type of requirement to re-invest or be taxed at a higher rate?"

That is the very type of thinking that created this problem.

I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government-sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury.

[kentuck]

5. You're entitled to your opinion...

I think you are wrong.

[starroute]

19. I regularly see you offer one-sentence, pro-corporate comments

But you never seem to offer any explanations or justifications.

If you do have a well thought-out position that you're working from, I'd like to see you lay it out and offer some coherent arguments to support it.

Otherwise, just laying back and sniping can come across as nothing more than sabotage.

[Cool Logic]

27. laying back and sniping was not my intent. Well though-out? That's debatable. Pro-corporate? Me too.

Seriously, you should be pro-corporate too. For as there are good and bad men, there are good and bad corporations.

Would you at least agree with me that there is that possibility? Well, the concentration of wealth that has occurred in our society has hurt many good corporations, just as it has hurt many good people. You see, not every corporation has an office of K-Street boys and girls pushing things for them.

So, when I see comments suggesting that politicians who do lunch on K-Street, should decide when and what a company should re-invest in, I am bewildered. For unless you were part of the aforementioned lunch group, it isn't going to be invested for your benefit.

Like I said before, I don't how well thought-out it is, but when I am trying figure out whether something makes sense or not, I look at past performance. And what I see, is that greed rules when K-Street write the rules. They are doing okay, they don't need any more help.

[tridim]

3. I think they're just waiting until conditions are right, then they will invest it all in China.

They'll claim they had no choice.

Fuck you Apple.

[sad sally]

18. Here's some indication that China may be closing its open door to American businesses.

Foreign businesses see more doors closing in China
FT Tilt
2011-07-12

China is generally perceived to be opening up more to foreign businesses and investments. But foreign businesses that are already present in the country are actually seeing the investment environment get tougher, according to experts.

The response of the Chinese government to the financial crisis may have something to do with this, as the government acted to protect and stimulate the local economy, and even backtracked on several foreign investor-friendly regulations, they said at the Future China Global Forum in Singapore.

President Hu stepped up focus on the local economy and furthering Chinese interests. And despite expectations that WTO membership will pressure China to be more business-friendly, these rules only exist in paper, and even these are changed without warning, they said.

"The investment environment is very clearly getting harder. There was a huge transfer of resources after the financial crisis to the state sector and to local government investment vehicles. And no one is certain things will go back to the way they were," said Christian Murck, president of the American Chamber of Commerce in China, a lobbying group.

"There's a significantly higher degree of uncertainty than before, especially as it comes at a time of political transformation, as well," he said, referring to the imminent leadership change at the Communist Party.

-snip

Even the list of sectors that are open and those that are closed to foreign investment can change without warning, he said. China ranks industries according to their importance to the economy and national security, and determines rules for foreign investment accordingly.

Banking, for example, is No. 3 on that list, so it is not surprising that the sector has been slow to open. Ditto other financial services such as private equity.

"In the case of life insurance, the government clearly wants local firms to have the bulk of the business. So even though it's an underpenetrated market, several foreign firms have been exiting because they do not believe there will be any changes to the rules to allow them more access," he said.

Forget financial services. Earlier this year, the construction equipment sector was moved to the restricted category without notice.

"And guess what, this is a sector where a lot of US companies have made big investments," Murck said.

http://www.businesschina.org.sg/en.php/resources/news/274?du

[dkf]

4. What if it's the craziness of the government that keeps them from investing?

Personally what the government does or does not do is making more of an impact on my choices than I would have dreamed of.

[LARED]

7. I believe that's a big part of the reluctance of companies to

spend capital.

[Dawson Leery]

9. What if this is a capital strike?

There have been hints given out that imply businesses are not hiring unless they get even more tax cuts and less regulation.

[kentuck]

10. It was definitely crazy to extend the Bush taxcuts....

That really created a lot of instability. They should have been allowed to expire. As we see, they were of no benefit whatsoever, right?

[dkf]

12. I used to think we needed to do that later, but in retrospect it would have created certainty

That the revenues would be there. Then S&P wouldn't have downgraded.

Maybe you are right.

[spanone]

6. they're holding this money hostage until they get more tax breaks

[kentuck]

8. Good one!

:-)

[Brigid]

25. Hey, extortion works.

We found that out just this past week. :eyes:

[stopbush]

11. Apparently, the Rs think they need $3-trillion in cash before they'll invest.

[LonePirate]

13. Wouldn't now be a good time for capital improvements and other upgrades?

If these companies are too cowardly to perform any direct hiring, how spending some of those mountains of cash and put other people to work? Then they could deduct those capital improvements and the net result would be as if they hadn't spent the money at all.

[southernyankeebelle]

14. There sitting on it because they want Obama as a one term president.

[unblock]

15. give them something to invest in by stimulating DEMAND.

if the poor and middle class had more money to spend on things other than food and energy, then industry would grow in order to profit from that demand.

ask just about any ceo sitting on piles of cash and they'll tell you it's the dearth of demand that's keeping them from expanding.
well, after you get them to stop begging from yet more of the kind of tax breaks, subsidies, and deregulation that has proven to make them more profit but also has proven not to create investment and jobs in america.

[lumberjack_jeff]

16. Make customers.

Hand people brooms and paychecks. The rest will take care of itself.

[Hawkowl]

17. The government borrows it

Keynesian economic theory states that the government should borrow this money and put people to work. Hopefully doing something beneficial to society. These workers then take their earnings and want to spend it on goods and services. This "primes the pump" of the economy and voila! businesses start reinvesting and producing to keep up with the increased demand.

That is what the vast majority of economists agree needs to happen. Real interest rates are effectively zero and aren't enough to get companies to invest (at least in the US). Free trade does nothing to stimulate demand because workers have no income/demand. Tax cuts on income doesn't work if you have minimal income to begin with.

The reason our government doesn't do this is because it is in the grip of a free market ideaology and views Keynesian economics as the equivalent of Communism.

Until we get demand moving again through increased employment AND increased wages, we will continue to see a decline in demand, and the continued accumulation of cash by corporations and the rich.

[sfpcjock]

20. Yes, companies are encouraged by tariffs and

direct US govt. action to invest elsewhere. They take the 50 cent Chinese slave worker and screw us because there are faster expanding consumer economies OUTSIDE of the US. It's a scam and needs to stop. Now.

[zalinda]

21. The answer is a number of things

First, tariffs have to be put on products that are not made in the US, even if it is an American company that is importing from their own company. Every country that is doing well, has some protectionism in place.

Second, each trade on Wall Street should have a sales tax, as it is a commodity and is being SOLD. Computers are buying and selling stocks and futures millions of times a day, it is not like it used to be where people would hold on to the stocks for years, and then paying income tax on their dividends. While this may not slow down day trading, at least it would give the government revenue.

Third, stop paying subsidies to those companies or corporations that don't need it. It is one thing to give a company that has a million dollar in sales a subsidy to advertise in foreign countries, it's quite another to give a subsidy to IBM or Coke. Farm subsidies should only go to real farms, and not industrial farms or people who have a couple of cattle or sheep on their acreage. Bring back the family farmer.

These people and companies are sitting on the money because, they are investing in 'air', which is the stock market. There is false rising and falling of revenue, depending on how many people get together and buy or sell. As long as it's free to play the market this way, it will continue. As long as companies aren't forced to produce product in the US, they will not invest in their American market.

And, I just threw in the subsidy thing, because I hate they way they are done.

zalinda

[JoePhilly]

23. There is more to it than that.

I'll use a comparison.

A personal accountant will tell you that you should build up enough liquid assets such that you could cover AT LEAST 6 months of expenses, just in case you lose your job at some point.

This takes discipline, more than most people have.

That same idea applies to companies. You need to have enough cash on hand such that you can keep the doors open during a prolonged slow down.

In both cases, the cash gives you safety and flexibility.

But "cash" assets have a down side. They generally don't accrue interest. That money is not seen as "working".

For the last few decades, companies have been reluctant to maintain strong cash positions, and have instead relied on short term loans. This way, they have all of their cash "working", and they use the short term loans to deal with fluctuations.

The 2008 financial crash ended that practice for the next few decades. Companies who were over leveraged (had no cash) found they could not get those short term loans, the could not pay their immediate bills, and collapsed.

The Companies who survived have decided to make sure that they maintain enough cash on hand to deal with such fluctuations.

And this cash you want to tax, it was already taxed, when they earned it.

To make this last point clear ... let's say you have 1000 dollars in savings. That money was taxed when you first earned it. You are saving it. Trying to build it up so you can survive 6 months with no income.

Should the government be taxing that money you save? You could be spending that money and creating demand. But because you (and millions of others) are holding on to it, demand is reduced.

A smart small business is building a strong cash position. And so are smart medium and large businesses.

The problem is that as we ALL build up a cash reserve, we ALL purchase less, and that's a big part of what is holding demand down.

[kentuck]

24. Do you think more taxcuts would help them invest in jobs?

Or just a waste of money?

[JoePhilly]

26. Waste of money.

Particularly if you mean corporate tax cuts.

Cuts for small business, correctly targeted, would help them build a better cash position.

The difference is that a larger business can close down entire divisions, or sell them off, and focus on a core business. That gives them flexibility.

A small business does not have the breadth. So a small business tax cut would help them.

By small business, I mean, under 500 employees or so.