January 23, 2022

Strategies: How Companies Could Unlock Stashed Foreign Earnings

Deliberately bloating your own tax bill isn’t a common strategy, of course. To the contrary, an army of lawyers, accountants, lobbyists and executives is at work throughout corporate America, finding legal ways to minimize taxes and retain profits. One common approach for multinational corporations is to stash foreign earnings in low-tax countries, keeping the money out of the reach of the Internal Revenue Service.

But companies like Apple, which hold mountains of cash overseas, have come under a chorus of criticism for not doing something useful with their stranded money.

Robert A. Olstein, a forensic accountant turned money manager based in Purchase, N.Y., has an elegantly simple solution for Apple, as well as for Cisco Systems and Microsoft, which also keep billions of dollars abroad: he says they should repatriate the wealth — which would require them to pay billions in fresh United States taxes.

“What’s wrong with paying taxes?” asks Mr. Olstein, whose flagship mutual fund, the Olstein All Cap Value fund, holds shares in all three of these companies. “I pay taxes. These companies should be paying what they owe, too.”

Mr. Olstein’s analysis isn’t altruistic. He says that after paying taxes, the companies should use the remaining cash to buy back shares — a move that he calculates should drive up their price by at least 20 percent. As he sees it, by avoiding taxes and letting the money sit unproductively, they are sabotaging themselves.

“These companies have been letting the tail wag the dog,” he says. “They’ve been letting taxes determine their strategy, and that’s a basic mistake. You should never do that. You should have a good solid moneymaking strategy first, and only then worry about taxes.”

Tax avoidance is only one of the reasons for the big buildup of cash by American companies. According to a recent report, “Why Are Corporations Holding So Much Cash?” by the Federal Reserve Bank of St. Louis, risk aversion is another.

Kathleen M. Kahle, a finance professor at the University of Arizona who has studied the issue extensively, said, “As risk increases, executives get nervous and they want to hold cash for a rainy day.” Tech companies that rely on big research and development expenditures to spur innovation are inherently risky, she said, “so it’s not surprising that a company like Apple would build up a lot of cash.” But, she added, “I have little doubt that the United States corporate tax code,” which imposes a 35 percent marginal tax on domestic corporate earnings, “is causing companies like Apple to hold cash overseas.”

Whatever the reason, United States corporations have parked staggering sums abroad. Last year, analysts at JPMorgan Chase estimated that accumulated offshore profits for American companies amounted to $1.7 trillion. This month, Bloomberg News estimated that the mountain of cash had grown to more than $1.9 trillion.

Mr. Olstein says that while his logic should apply to a broad range of companies, he has focused on Apple, Cisco and Microsoft. “We’re shareholders of those three and know them well,” he said. “If they were investing it productively, fine. If they have a productive use for it now, fine, let them do it. But just leaving it there to avoid taxes? Come on.”

Mr. Olstein adds that he has no informed opinion about whether the domestic corporate tax rate is appropriate or whether it will eventually be lowered. But after President Obama’s re-election, he said, “it would seem that the probability of a major cut in the tax rate soon is unlikely.” If corporate executives believe that a lower rate is imminent, they should reveal their insights to shareholders, he said; otherwise “it’s time to accept reality.” Furthermore, he said, “We’ve got roads and bridges that need to be fixed and bills that need to be paid and that tax money would help.”

He says his position is fundamentally selfish, however, centered on what is best for shareholders.

He’s not opposed to another approach: moderately increasing these companies’ dividend yields. That would help siphon off at least some newly generated cash or some cash held domestically. But it wouldn’t liquidate the foreign cash hoards. David Einhorn, the hedge fund manager, has suggested that Apple issue a novel type of preferred stock intended to tap the foreign cash, which would pay guaranteed dividends. But Apple has rejected that proposal.

Article source: http://www.nytimes.com/2013/03/24/your-money/how-companies-could-unlock-stashed-foreign-earnings.html?partner=rss&emc=rss

Wealth Matters: Net Worth, Self-Worth and How We Look at Money

This is one of the findings of a new academic study, “Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory,” published in the current issue of The Journal of Financial Therapy.

The study, conducted mainly by Brad Klontz, a research associate professor at Kansas State University, and Sonya L. Britt, an assistant professor there, comes at a time of high financial anxiety among most Americans. The jobless rate continues to be high. And houses, the asset that made so many people feel rich before the recession, have yet to regain their value. In fact, according to the Standard Poor’s Case-Shiller Home Price Index, home prices in 20 metropolitan areas, after some modest gains, fell again in February. For those whose net worth is largely tied to the value of their houses, it could take a long time for their nest eggs to rebound, even if jobs do come back.

Amid this financial unease, Mr. Klontz said he set out to test observations he had been gathering in his practice as a clinical psychologist in Kapaa, Hawaii, for over a decade. He found that some people were under stress about having too little money while others were anxious about losing what they had or felt guilty for having so much. Some people immediately disliked anyone with money, while others would spend their money immediately without regard to the future.

The Klontz study asked 422 people about 72 money-related beliefs and then analyzed correlations among the answers. This produced four broad categories that Mr. Klontz called “money scripts”: money avoidance, money worship, money status and money vigilance. How does he define them?

Those who are in the money avoidance camp share beliefs that make them distance themselves from money. Mr. Klontz said this group may be worried about abusing credit cards. They may believe that they do not deserve to have money and may sabotage their own financial well-being. People in this group tend to have low incomes and net worth. They also tend to be younger.

People who fall into the money worship camp would seem to be the opposite, but their behaviors are equally destructive. They believe that an increase in income or a windfall will make everything better and love the status derived from the things that money can buy. This belief also lands people in debt because they use whatever credit they have to buy things that will impress others.

“They believe money will solve all of your problems,” Mr. Klontz said. “This is the money belief pattern that afflicts the majority of Americans.”

Anxiety about money status occurs when people’s self-worth is linked to their net worth. These people often take bigger financial risks because they want to have the stories of big gains to impress their friends. (Don’t expect them to tell you when those big bets do not pay off.)

The only affliction that did not have an overwhelmingly negative impact on people’s financial future was money vigilance. People with this disorder do not like to share information about their income or wealth, but they also do not spend foolishly. Still, excessive wariness about spending can keep these people from enjoying the benefits of what money can buy. On the other hand, while they did not necessarily have higher incomes, they paid off their credit card bills each month.

“Maybe some anxiety and vigilance around money is good for your bottom line,” Mr. Klontz said.

Not surprisingly, the four money scripts illustrate problems that have less to do with money than with what money represents. But what may be surprising is that the study found few links between who held what belief and their family background, race, gender, education level or income.

The majority of the people rated their highest level of education as either a college or graduate degree. Their income was equally divided into four categories, from less than $30,000 a year to more than $100,000. And their childhood economic status was generally middle class, with only a few reporting that they grew up poor or wealthy. In fact, the only link to family background came from the group that fixated on money as a way to gain status: mostly, they grew up poor.

Article source: http://feeds.nytimes.com/click.phdo?i=a5e40d00fef383b8bf7db92c7dd41743

Bucks: Study Finds 4 Unhealthy Attitudes Toward Money

Paul Sullivan, in his Wealth Matters column this week, writes about a new study that looks at people’s attitudes toward money.

The study concludes that there are four basic attitudes that can hurt people’s finances. Money avoidance, in which people seek to distance themselves from money, is one. Those who fall into the second category, money worship, seek the status derived from the things that money can buy. Money status, the third, occurs when people’s self-worth is tied to their net worth. And people who fall into the last category, money vigilance, are wary of spending.

The study was intended to help therapists and financial advisers quickly understand their clients’ beliefs about money.

Do you see yourself falling into any of these categories? Do you have any advice that would help people get over some of their unhealthy attitudes toward money?

Article source: http://feeds.nytimes.com/click.phdo?i=efb1209b2f4dae0795a07fb94ea35a96