Time to Tax Corporate Cash Stockpiles
Harvard Business School finance professor Mihir Desai has a unique proposal for helping the economy get going again. Tax huge corporate stockpiles of cash that are, for the moment, not being used.
Writing an op-ed in the Washington Post, Desai notes that US companies over the last several years have been accumulating large cash reserves -- $1 trillion by some estimates -- while they wait for good investment opportunities to come along.
"If chief executives and chief financial officers are goaded into spending that cash," writes Desai, "the economy could benefit from a significant stimulus that, unlike stimulus measures relating to government spending, would stem from decentralized actors responding to private information and incentives."The government owns the stick that could motivate companies to put that money to work on new projects in the US. Taxes. Desai proposes a temporary 2 percent tax on corporations' "excess" cash holdings, which would be enough of a penalty, especially under shareholder pressure, to turn those holdings into productive work.
One wrinkle to this scheme is that a large amount of these holdings are held overseas, so Desai sees the need for companion action to temporarily cancel the country's repatriation tax, which is charged on earnings moved back to the US.
The 2 percent tax solution wouldn't raise much money, Desai says. But the goal of the tax isn't to raise revenue, but rather to motivate companies to spend on projects at home.
(Photo by Flickr user me and the sysop, CC 2.0)