Tuesday, July 12, 2011

Rationalising Corporate Canada’s Cash Stash

From the Progressive Economics Forum, a Canadian group:
Statistics Canada figures indicate that private non-financial corporations held $471 billion of cash in the first quarter of 2011 ($322 billion of Canadian currency plus $149 billion worth of foreign currency). Including short-term paper would bring this total to half a trillion dollars, enough to pay off the national debt (i.e. accumulated deficit).

Cash hoarding is a critical point in the debate about corporate taxes. If incremental after-tax profits are being deposited (rather than reinvested or paid out), lower corporate tax rates likely just produce higher piles of cash. If corporate Canada already has half a trillion dollars more than it wishes to invest in physical or financial assets, there is no reason to expect that corporate tax cuts will boost investment. On the contrary, if the government collected more of this money and invested it directly, Canada would have more investment in total.
Read more here. Read Paul Krugman on this, with a US perspective, and Richard Murphy on this, with a UK perspective.

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