Wednesday, May 18, 2011

The $37 Billion Question

Said a Harvard professor of econ,
"That Google's got something unique on:
They have cash by the score,
Yet still borrow more;
This is something I've puzzled all week on."  

Said an expert in cross-border taxes,
"I should hope the professor relaxes;
As Google keeps cash
In an overseas stash,
'Til taxation here wanes and not waxes."  

Professor Greg Mankiw, who teaches economics at Harvard and writes America's best-selling textbooks on the topic, wondered in his blog about the apparent contradiction of Google's borrowing money at long-term rates, when they already have $37 billion in cash idling at short-term rates close to zero. Proving that smart people attract smart blog followers, Prof. Mankiw quotes a reader who responds that Google is "intertemporally arbitrag[ing] the U.S. tax code. By not repatriating the $37 billion now, they are betting that the U.S. corporate tax rate on repatriated foreign profits will be appreciably lower in the future."

14 comments:

  1. LOL Google knows something everyone else doesn't?!?

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  2. Thank you all for your kind comments.
    @Anonymous: it seems that quite a few profitable US multinationals have come to the same realization as Google, and are waiting with their cash offshore until the American tax regime is more to their liking.

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  3. I just stopped by to congratulate you on your Honorable Mention in last week's Limerick-Off challenge: Limerick of the Week 10. Thanks, as always!

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  4. GOOGLE'S BORROWING:
    WHAT ARE THEY BANKING ON?

    To answer that question rhetorical,
    one should query an Apple or Oracle.
    They predict a redux
    of the ’04 influx:
    Off-shore monies at tax rates historical.*

    *Apple, Cisco, Oracle, Pfizer are
    preparing to lobby to make just that happen.

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  5. @Madeleine: thank you very much for the honor, and the weekly fun of the Limerick-Off!

    @Tonia: Well done!

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  6. On a more serious note, that is a risk that Google is taking...also, a suggestion by Tonia where she says 'lobbying' from some top tech firms would make govt. take such a decision is far fetched...the financial implications would be serious and negative...

    The reason for Google to take such a decision is more complex than just reduction of corp tax rates!!

    Another corollary, from this is that all or most firms with with huge cash deposits will use a similar approach as Google.

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  7. Mr. Amit...
    The authors in my source, www.dailytech.com (2/17/2011) certainly didn't indicate that they thought the lobby efforts idea was folly; obviously,neither do the aforementioned involved firms themselves, along with Cisco, Duke Energy and Pfizer think so. Since they are preparing a lobby to bring about a similar outcome as the tax break that was granted in 2004, I also don't think the idea of history, or the government in this case, repeating itself by granting it is far-fetched at all.
    As for Google's decision being "more complex"... Well, it was not my intent to write in the depth of a treatise in the length of a limerick.

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  8. Tonia,

    I totally agree with your point that Cisco, Duke, Pfizer and such companies are trying hard to find a way to cut the corporate taxes further...but you also mention '2004', and there lies the answer to what I had pointed out earlier...

    Just a few years from 2004, the economy busted and if I was one of those intelligent people controlling the country's financial policies, I would in actuality think it was not a correct decision...in hindsight I as a govt. body and as a country, was far worse off and gave away an income which could have helped the ailing economy just a few years later...

    I don't think the Obama administration is going to commit such a mistake again...more so, as the US econ. is still getting to that stable point...and giving away a decent share of income through the corporate tax is something that govt. wouldn't want anytime soon...

    And coming back to the Google question: by taking money from investors Google is making sure that its cash deposit is safe...Google is just hedging its risk in a way...just one of the reasons I guess!

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  9. Seems like this blog is a case in point:
    "Proving that smart people attract smart blog followers"

    I really liked Tonia's limerick!

    And YOU Dr.Goose, well, you may not be Professor Greg Mankiw of Harvard, but you are very clever. You also have a delightful sense of humor. I am happy I found my way here, during the course of much aimless flitting hither and yon on the internet.

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  10. @Ellie, thank you for that endorsement which, if the expression above holds true, redounds to your credit as well. :-)

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  11. Dear Ellie K,
    I just saw your comment stating that you liked my Google limerick.
    Thank you!
    And I agree: The Dr. Goose site is both enlightening and entertaining.

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