Apple, Microsoft, and Google hold 23% of all U.S. corporate cash

I invest $100. You spend the $100 to get $200, making $100 in profits. You pay corporate income taxes of $43 (average state plus federal rate) leaving $57 and then pay me that. I pay $17 ($57*30%—federal dividend tax plus medicare tax plus state average) and keep $40.

(It's the same $40 if you liquidate the company and pay me out the money as a capital gain. Also it's the same if you use it to repurchase my equity to cash me out.)

Instead suppose I loan you $100 at 100% interest. You spend the money and make $100 profit, exactly enough to pay my interest and you pay me the money. The profit is entirely tax free for you because of the business interest loophole that exempts 'interest' from taxation. I pay regular income tax of 46% (top federal, Medicare, and typical state rates combined) and keep $54.

Note that the two situations are exactly the same for you. You took my money and earned $100 (after presumably paying yourself) and ended with $100 profit. Then you gave me back the profit. But if I'm a shareholder with skin in the game, I get only $40 back. If I'm a 'passive' investor that just made a loan I get $54. Either way I put the same money at risk and get the same result, but one way the IRS lets me keep 35% more profit because we called it a loan.

But usually we don't know how much profit there's going to be. And sharing profits with multiple rounds of investment is hard with debt. And debt is lousy for profit sharing and stock options.

But if you run a bank, you can underwrite debt contracts that skirt those limits with conditional clauses and preferred liquidations and complicated conditional partial default clauses. And you can arrange convertible debt if necessary. And handle negotiations when conditions change.

Simple loan contracts are much less flexible than equity and usually not sufficient to keep all parties happy and secure. Note that if you try to handle complicated loan contracts yourself without a bank underwriting them, the IRS can reject your definition of a loan and charge you the stock dividend rate and issue heavy penalties. The IRS knows that loans are powerful tax avoision tools and the definition of what is a loan and what is equity is vague and undefined. They will look into your arrangement if it seems too good. If you pay fees to a reputable bank to underwrite, your investment is presumptively a loan and the IRS will never bother you. But if you're not paying protection cash to the banking industry, woe is you.

Companies would prefer to issue stock and let the market handle all those issues more simply, but equity financing means giving 35% of profits straight to the government.

If you issue bonds instead, you can keep the 35% and get you investment capital cheap. All you have to do is pay a few percent of all corporate profits to bankers and issue bonds.

It's a huge subsidy to banks and big old stable corporations with credit ratings. Probably it's worth around half of all US banking profits, tens of billions of dollars annually. (If you take stocks as the baseline, it's worth hundreds of billions.)

And you take advantage of it by keeping very little cash profit and running operations on as much debt as you can use. That allows you to pay out profits as interest. That's why most non-tech companies have little cash.

And it's why companies prefer to pay on corporate bonds rather than issue dividends.

To be clear here, American companies aren't moving cash from the US out to overseas to hide them from the IRS - this is cash that was generated overseas. For every iPhone sold in the US, Apple is paying an appropriate tax.

A similar way to look at this is, lets say you moved to Russia, started a new life, with a new job, and every time you wanted to send money to your mom, the US took a 35% cut.

(I'm aware that American expats still have to pay taxes as well).

Also your plan is impossible because it's not Apple or Facebook or Google the US listed entities that own this money, it's independent country specific subsidiaries. The US Gov't has no territorial claim on their asset reserves. The fact that the big companies report the money as their own is a GAAP sleight of hand that everyone knows already understands both sides of in the marketplace.

Now you have one of two problems. If the 3% goes against only cash and not other assets then it's completely ineffective, because they can just hold the money in whatever type of assets aren't included. But if it does include all foreign assets then US companies can no longer do business in foreign countries, because they won't be competitive with local companies that don't have to pay the same recurring tax on the plant and equipment and other business assets needed to operate there.

The do business in the US and they pay taxes on the business they do in the US. The US tax laws are absurd on this issue.

> there's nothing stopping Congress from enacting laws to tax stockpiled funds.

I am sure that would be help up in the courts for so long it would never see the light of day.

a) pay dividends, which are taxed on the recipient

b) buy back shares, generating a capital gain for the seller, which is taxed

c) park it in a bank, which boosts reserves and indirectly stimulates the economy

d) make alternative investments such as corporate venture capital, real estate etc

I personally think there should be no corporate income tax. Instead, taxes should be paid by citizens when the money hits their personal bank account.

Yes, there would be opportunities for evasion by people incorporating themselves. No, I don't know what the ultimate solution to that is.

BUT... right now there is an army of accountants and lawyers who are able to charge companies like Apple exorbitant fees because the potential tax savings is so huge. If you have a $100 million tax liability, using accounting tricks to lower that liability by $20 million justifies paying a lot of lawyers.

If those gains were distributed instead of taxed at the corporate level, suddenly those lawyers will find they have to service a thousand, probably tens of thousands of customers to realize the same payoff they get from one big customer. That changes the economics of tax evasion considerably.

Isn't a large fraction of the US (40% or more?) shareholders? I am one, and I'm certainly not a member of the business elite.

IE, the capital market could get richer, or it could get faster, and in either case absolute money moved increases. The former is often hard to do, since you either need to print money without causing inflation or cause the money to appreciate against goods into a strong dollar, and both have negative side effects going faster doesn't really have until you are going too fast and realize you have to slow down.

The reason banks offer free checking is so they can get your money on deposit and then make money loaning it out back into the economy. They aren't offering free checking because they are being charitable.

In practical terms the only limit to the amount of new money is the amount qualified borrowers are willing to borrow. Banks that don't have enough reserves typically borrow from other banks or from the central bank. The central bank (in the US, at least) isn't bound by reserve limits at all and can create money by changing a number in a computer.

The lack of lending by banks isn't a problem in and of itself. It's a symptom of the underlying problem, which is a lack of economic activity that would require borrowing.

Because the companies do not have cash hoards. They put cash in a bank. The bank loans the money out to people who spend it.

The idea that corporations are Smaugs with mountains stuffed with gold coins needing to be liberated by hobbitses and merry bands of dwarves is a fine fairy tail, but is not how modern economies work.

(The amusing thing about Smaug's hoard is it was so ridiculously large that if it was spent by the dwarves, the value of gold would completely collapse to the point where it'd be used to make plumbing.)

This is actually the thing that politically prevents such taxes from being collected.

You have these companies that spend e.g. ten billion dollars on R&D that produces a hundred billion dollars in profits. Right now the ten billion dollars they spend on R&D gets taxed in various ways (payroll/sales/property taxes) in the place they do the R&D, which is very good for that place.

What happens if you then demand that on top of that, 35% of the hundred billion be paid to the same place? You just made it actually profitable for them to go to California, find some engineers, and pay them five times the previous market rate plus their relocation costs to move to Ireland and set up shop there.

The lithium ion battery problems are mostly under control now.

Also another reason they may worry, is that maybe phased-array antennas may become competitive soon, so investing on fiber for the long term might be risky.

On the other hand, stuff like self-driving cars should have a different competitive/economic story, so scaling may look different.