Both Republicans and Democrats agree that real and sustained job growth has to come from the private sector. The problem is, the private sector isn't spending much -- and not because they don't have the money. U.S. corporations are sitting on over half a trillion dollars in cash reserves, according to a new study by University of Maryland economic researchers, and if all that capital was spent on projects, it would create 2.4 million jobs by 2014.
The idea of US companies "hoarding cash" has been a front page-splashing story for a while. Companies in Standard & Poor's 500-stock index have been "hoarding" over $1 trillion, according to the Federal Reserve figures, "shunning investment," "laying off workers," and "stiffing" the people, so that they can have a cozy nest egg, as they ride out these topsy turvy times.
The University of Maryland study, commissioned by the UN's International Labour Organization, places the cash stockpile at the more modest value of $508 billion -- more than the GDPs of Poland, Sweden, Norway and Saudi Arabia.
If all that money was spent, the study concludes, it would create 2.4 million jobs, reducing unemployment by 1.5 percent, and also lifting up the country's GDP by one percent this year, 1.5 percent next year, and 1.6 percent in 2014. If just half that money was spent, the study continues, one million more Americans would have work.
It's not as if companies need these liquid assets, the researchers note. The ratio of cash-on-hand to current liabilities is 14 percent higher than the historical average. But the uncertain economic environment has created a "paradox of thrift," in which companies invest little, create fewer jobs, and make the economic environment that much more uncertain.
"Now, as government fiscal austerity hampers U.S. economic growth, new private spending becomes essential to close the employment gap," said Jeffrey Werling, one of the report's coauthors and the executive director of the University of Maryland's Inforum Research Center, in a press release. "Investment in new plant and equipment could help pick up the slack from reduced government expenditure, boosting payrolls and providing a much-needed jolt to economic activity."
Economists have pointed out that much of this "hoarded" cash is in the form of foreign profits, which corporations are hesitant to bring home, since that would mean surrendering up to 35 percent of it in taxes. This is probably why Microsoft borrowed $2.25 billion in unsecured debt last February, while sitting on $40 billion in cash and short-term securities, The Wall Street Journal speculated.
U.S. companies have in fact been racking up the debt, at the same time as they're supposedly swimming in money. S&P 500 companies borrowed 44 cents for every dollar they hoarded, reported The Associated Press last November. From the beginning of the recession, Walmart has added $13 billion more debt than cash. PepsiCo has added $22 billion more.
The researchers proposed the idea of a tax amnesty for repatriated cash, on the condition that the funds are put into an "infrastructure bank" for three years. That money would then be allocated to much-needed public infrastructure projects. In this scenario, 1.1 million new jobs would be created, and GDP would expand by 0.8 percent, the study predicts.
The "infrastructure bank" is more fantasy than reality, but sources hint that president Obama will call for cutting the top corporate tax rate later this month. If the plan goes through, will see if tempts our country's largest corporations to bring home some of their hoarded offshore loot, and put it in the pockets of the American people.
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