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U.S. Tech Companies Could Double Overseas Cash By 2013: Moody's

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TECH COMPANIES OVERSEAS

At a time when the United States is marred in debate over deficits and debt ceilings, American tech companies are keeping about 70 percent of their cash and short-term investments overseas, according to a report published Monday by Moody's Investors Service.

Many of the companies named in the report have significantly more cash held overseas than in the U.S. Microsoft, for example, is keeping $42 billion of its $50.2 billion abroad, or 83 percent, according to Forbes. Apple has $40.2 billion of its $65.8 billion overseas, or 61 percent. And Oracle has $21.9 billion of its $24.4 billion abroad, or nearly 90 percent of its earnings.

The numbers are part of a rising trend. Four years ago, tech companies only held about 57 percent of their cash overseas, Moody's analyst Richard Lane notes in the report.

By 2013, Lane predicts, major tech companies could hold as much as $238 billion abroad, or 79 percent of their cash balance.

The Moody's report about the tech sector illustrates a wider point about U.S. companies -- namely, that they're holding a lot of cash overseas. In May, JPMorgan released a report that found 519 companies were holding a combined $1.375 trillion abroad, or $2.65 billion per company.

Under current U.S. tax policy, a company that wants to repatriate foreign has to pay a considerable tax on it, with the corporate tax rate reaching as high as 35 percent. This creates a strong disincentive for companies to bring profits back from overseas.

Nevertheless, legislators are looking for ways to get some of that money home.

The most widely discussed option is a tax-repatriation holiday -- a special occasion of amnesty when companies could repatriate cash at tax rates of 5.25 percent, instead of 35 percent. The idea has received bipartisan support in Congress.

President George W. Bush enacted a tax-repatriation holiday in 2004, bringing about $312 billion in foreign-held funds back to the U.S.

But subsequent research showed that little of that money was used to stimulate the economy in the form of investments. About 92 percent of it went to shareholders, according to a report by the National Bureau of Economic Research.

In March 2011, Michael Mundaca, then Assistant Treasury Secretary for Tax Policy, cited the disappointing results of the 2004 repatriation holiday in a blog post that argued against repeating the experiment.

"There is no evidence that it increased U.S. investment or jobs," Mundaca wrote of the 2004 holiday, "and it cost taxpayers billions."

President Barack Obama has also signaled his opposition to a repatriation holiday. Last week, though, labor spokesman Andy Stern predicted that Obama would change his mind eventually.

For his part, Richard Lane of Moody's thinks it's unlikely the tech-sector cash will come back to the U.S. any time soon. In the Moody's report this week, Lane wrote:

There has been a lot of noise but little movement toward corporate tax reform that would incent companies to permanently repatriate overseas funds. Given the political cycle and strong differences on both sides of the aisle in Washington, we do not anticipate any material tax law changes over the near term that would prompt overseas cash repatriation, whether in the form of a 2004-style Homeland Investment Act or a more fundamental long-term tax reform.

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