Critics of the Republican tax overhaul said they while tax cuts might provide a sugar high for the economy in the short run, large corporations didn’t really need the boost since most were already in good financial shape. Recent data on cash holdings at U.S. firms suggest those critics may have had a point.
Axios’s Dion Rabouin reported Thursday that a “truly bizarre trend is having an impact on the economy — wealthy people and corporations have so much money they literally don't know what to do with it.”
Rabouin says that after recording a record $2.3 trillion in profits last year, U.S. corporations are sitting on “record levels of unused cash” worth nearly $3 trillion. The wealth of the richest households has exploded as well, with the top 1% holding a record $303 billion in cash.
Companies aren’t putting much of that cash back into their businesses, but are setting records for share buybacks designed to boost stock values. Wealthy individuals are pouring money into a wide variety of investment vehicles, but some professional investors are running out of ways to put all of it to work, Rabouin says, with private equity firms reporting $2 trillion in “capital dry powder” earlier this year.
The trillion-dollar question: Did companies really need the cuts?
Rabouin says that the Trump tax cuts appear to have exacerbated long-term trends that put more money in the pockets of businesses and wealthy households. One resulting problem is that they can’t find uses for all the money they are holding.
“Perhaps the fallacy of the tax plan to begin with was companies were not starved for capital coming into this," Mark Hackett, chief of investment research at Nationwide Financial, told Rabouin. "They were starved for growth opportunities."