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."


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

  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.

  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!


    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.

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

    @Tonia: Well done!

  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.

  7. Mr. Amit...
    The authors in my source, (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.

  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 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!

  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.

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

  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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