The treatment of "cash on the sidelines” is becoming an increasingly pointed political and economic issue in the sluggish recovery, with Republicans blaming uncertainty created by Democratic healthcare and financial reforms for companies’ reluctance to invest and create jobs.
But some large groups say that US tax rules are a more important barrier. JPMorgan estimated that for some companies, so-called trapped cash amounts to more than 75 per cent of cash balances. To use the cash domestically, they would have to pay tax, typically of 25-35 per cent.
"We do have overseas cash and we would be very supportive of a repatriation holiday,” said Keith Sherin, chief financial officer of General Electric. "If you think about it, there is a lot of cash trapped overseas. If companies could bring that back at more competitive tax rates, I think it would be good for the US economy.”
Sceptics, including in the administration, say the cash level alone is not a good guide to investment firepower as it ignores corporate debt levels. They also warn that Congress could raise hopes of more tax holidays; that repatriated cash might well be paid to shareholders rather than lead to job creation; and that a lack of investment is not the most pressing economic problem. The Treasury declined to comment.
The eight largest technology companies together have about $200bn in cash, with Cisco, Microsoft, Google, Apple and Oracle topping the list, when financial companies and those with large funding arms, such as GE, are excluded.
"Some of our clients tell us that this issue is among the most distortionary elements of their financial policy,” said Marc Zenner, managing director in the corporate finance advisory group at JPMorgan. "It interferes with the optimal allocation of capital, restricting the use of that cash for strategic transactions or to return funds to shareholders.”
Cisco has said that about 80 per cent of its $40bn cash pile is located overseas and has called for the US government to loosen taxation rules to enable companies to repatriate cash earned overseas.
In 2004 and 2005, a temporary cut in the tax rate to 5.25 per cent prompted companies to return as much as $400bn to the US.