This week, I received an interesting email from Standard & Poor's Ratings Services. I clicked through to read it, despite the rather thick headline:
Record U.S. Corporate Cash, Debt Growth Fueled By 'Synthetic Cash Repatriation,' Report Says
After I cleared that first hurdle, I realized it was actually a really significant report.
Here's a CliffsNotes version of what S&P was getting at: Essentially, by the end of 2013, large corporations (excluding banks and financial services conglomerates, which are a different beast) held $1.53 trillion in cash and short-term investments in offshore accounts. On its face, that seems ludicrous. How could a corporation survive without its own money?
Simple, S&P analysts said. Instead of bringing that cash back to the United States, companies have been issuing debt to please shareholders and investors. That debt issuance is what S&P called "synthetic cash repatriation," meaning corporations just borrowed money to pay dividends and share buybacks instead of reaching overseas for their piles of cash.
The question here is why? Why dip your feet into debt when you have pools of your own cash sitting across the pond? The first reason is interest rates. Borrowing money right now is rather cheap, as interest rates continue to hover at historically low rates. But the second reason, as many corporations have bemoaned, is bringing that money back into the United States triggers the corporate tax rate, which is about 35 percent.
So, to recap: Non-bank corporations are holding trillions of dollars overseas to avoid the U.S. corporate tax, and to appease investors who still expect rewards from their investments, these corporations are issuing debt instead of bringing that cash back. Despite the flawed logic, S&P analysts said this trend is likely to continue.
"We believe most of these issuers, if given the choice, would prefer to repatriate the cash and limit debt issuance. However, as investors demand greater returns through buybacks and dividends, increasing domestic debt may continue to correlate with rising international cash balances for U.S. corporate issuers."
Let's assume for a moment these corporations decided to haul their money back into the country. And let's also assume they pay the full 35 percent tax rate, which corporations almost never do (thanks to loopholes and special breaks). That means the government would receive $535.5 billion in taxes to use for, well, pretty much everything: schools, roads, national defense, research, veterans benefits, Social Security, Medicare, Medicaid. Everything.
What may seem like a ho-hum issue of companies hoarding money overseas is actually very important for healthcare. As we all know, and mentioned above, taxes fund large portions of healthcare in this country. Medicare, Medicaid, the Children's Health Insurance Program, Tricare, the National Institutes of Health, graduate medical training — this directly affects hospitals, physicians, home health providers and almost anyone else who touches a patient. When those programs lose funding, it's the providers that ultimately pay.
It really shouldn't be surprising (sadly) to see situations like that of the public-owned Palm Drive Hospital in Sebastopol, Calif., which filed for bankruptcy and is teetering on the brink of closure. Or Crittenden Regional Hospital in West Memphis, Ark., which may shutter its doors if the county doesn't pass a special sales tax. Both have experienced financial problems, in part, due to dwindling reimbursements.
These are actual hospitals that are going out of business, forcing numerous people into the unemployment line and putting patients in a scenario where healthcare suddenly becomes a lot more difficult to obtain. And the overarching cause is because people, specifically large corporations, don't like to pay taxes, which would immensely help stabilize programs like Medicare.
This reminds me of a great article I read in The Lab Magazine last summer. Sasha Grujicic interviewed world-renowned linguist, social commentator and MIT professor Noam Chomsky, PhD. In the article, Dr. Chomsky brought up the issue of taxes and how they are demonized even though they are the bedrock of any fair country:
"If you had a functioning democracy people would celebrate paying taxes. We're paying taxes because we're getting together to fund the initiatives that we decided on — what's better than that?"
Tax Day just passed this week. While there are many issues with the U.S. tax system, it's worth remembering — especially for those in healthcare — that our delivery network would simply not exist without taxes. Here's to hoping that as a country, we can eventually celebrate and embrace the concept instead of burying money in a Cayman Islands or Irish bank account.