Wednesday, November 14, 2012

10 hidden taxes you didn't know you're paying

We need to get this to the Fiscal Cliff! What ...
We need to get this to the Fiscal Cliff! What could go wrong? (Photo credit: DonkeyHotey)
MONEYWATCH/ November 12, 2012, 11:06 AM

Taxes (Photo credit: Tax Credits)
(MoneyWatch) The dreaded "fiscal cliff" could raise taxes for 80 to 90 percent of Americans, if no deal occurs before the end of the year. But with attention focused on the political wrangling in Washington, the American Institute of CPAs is out with 10 common taxes many Americans don't realize they are paying. To help individuals plan for these insidious taxes, the AICPA has also created the Total Tax Insights calculator."

1. Medicare tax: The amount withheld by your employer from your paycheck (often under the line item "FICA," which stands for Federal Insurance Contributions Act) helps cover the cost of running the Medicare program, the federal system of health insurance for people over the age of 65. Employers pay one half of the FICA tax and employees pay the other half. The employee contribution is 6.2 percent for Social Security and 1.45 percent for Medicare on wages up to $110,100. The temporary payroll tax cut for tax years 2011 and 2012 reduced the employee portion for Social Security by 2 percent.
USFederalSocialInsuranceTaxShareByIncomeLevel.1979-2007 (Photo credit: Wikipedia)
2. Self-employment tax: A Social Security and Medicare tax for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. The self-employment tax consists of two parts: 12.4 percent for Social Security and 2.9 percent for Medicare (hospital insurance) on income up to $110,100. However, the temporary payroll tax cut for tax years 2011 and 2012 reduced self-employment tax by 2 percent. ...
USFederalTotalTaxShareByIncomeLevel.1979-2007 (Photo credit: Wikipedia)
3. Alternative minimum tax (AMT): ... In essence, it is a flat tax with two brackets, 26 percent and 28 percent. The problem with AMT is that it now ensnares not only the wealthiest Americans, but 4 million to 5 million taxpayers with annual incomes between $200,000 and $1 million. Congress has yet to approve a new inflation "patch" that would allow millions to escape AMT (the last patch expired in December). If a new one is not enacted, the AMT will hit 31 million taxpayers this year, reaching deeply into the middle class.
Share of federal excise taxes paid by US house...
Share of federal excise taxes paid by US households reporting different income levels, 1979-2007 (Photo credit: Wikipedia)
The utility taxes that Americans pay can add up quickly, as do the so-called "sin taxes" on alcohol and tobacco products.
4. Electricity or natural gas tax: A tax collected by energy suppliers based on consumption during the billing period.
5. Cable tax: Tax imposed on cable television subscribers.
6. Landline phone tax: Federal and state tax associated with use of a fixed phone line.
7. Cellphone tax: Federal and state tax imposed on mobile telephone users.
8. Federal and state gasoline tax: A tax on every gallon of gasoline sold, which account for 11 percent of the cost of a gallon of gas, according to the Energy Information Administration. ...
9. Cigarette tax: The tax on cigarette use varies from state to state. New York City has the highest rate, ....
10. State alcohol tax: The tax imposed on the purchase of beer, wine and spirits varies state by state. The highest rate for spirits can be found in Washington and the highest for beer is Alaska. Wyoming has the lowest rate.
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Jill SchlesingerON TWITTER »
Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

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Alternative Health Benefits: "Like Bringing Your Pet to Work"?

This is the second of two articles on the role of complementary and alternative medicine in health-benefits plans. The first covered what is likely the most extensive CAM program in Corporate America. This article presents viewpoints from others in the corporate, medical, and insurance communities.

Despite one manufacturer’s staunch insistence that its broad coverage of alternative medicine practices yields big benefits, skeptics abound. (
David McCann

Parker Hannifin
Parker Hannifin (Photo credit: Wikipedia)
Big manufacturing company Parker Hannifin is adamant that its health-benefits plan, which covers an eye-popping assortment of complementary and alternative CAM techniques and therapies, is proving effective at keeping employees healthy and reducing health-care costs.

7-4. Complementary & Alternative Medicines
7-4. Complementary & Alternative Medicines (Photo credit: Peter Morville)
The company may well be unique in its breadth of CAM coverage. But cardiologist Ken Pelletier, a CAM advocate who helps companies design customized health and wellness initiatives, is nonetheless skeptical that Parker Hannifin, a Fortune 500 manufacturer, is on the right path.

Referring to the company's CAM coverage list ..., Pelletier says, “At least half if not three-quarters of these are in the ‘caveat emptor’ category. Many of them have no evidence base whatsoever. That doesn’t mean they won’t work for some individual with an unusual response to it. But that doesn’t mean they’re replicable.”

English: Logo of the U.S. Food and Drug Admini...
English: Logo of the U.S. Food and Drug Administration (2006) (Photo credit: Wikipedia)
From the list, only acupuncture, bio-identical hormone therapy, and chelation (for heavy-metal toxicity, not some of the other conditions it’s sometimes used for) are approved by the U.S. Food and Drug Administration. Practitioners don’t need FDA approval to provide the others because they are not even recognized as therapeutic interventions, says Pelletier. Only a few, like acupuncture, biofeedback, hypnotherapy (if prescribed by a psychologist or psychiatrist), and therapeutic massage, are covered by more than the rare health plan.

Did someone mention alternative medicine.
Did someone mention alternative medicine. (Photo credit: geofones)
Pelletier’s assessment is backed up by Helen Darling, president of the National Business Group on Health, which represents more than 350 large-employer members on national health-policy issues. “For most of these things, I’ve never heard of a company that covers them,” she says. “For the most part they are not medically necessary. They’re more like perks, like bringing your pet to work. [Parker Hannifin] is wasting its money unless it’s clear in its own mind that it’s getting better talent and retaining it by doing this.”

Not surprisingly, the health-insurance industry is also on the opposing side. “Typically what drives coverage is whether there is a scientific evidence base that tells us something is safe, effective, and in some cases more effective than an alternative,” says Susan Pisano, vice president of communications for America’s Health Insurance Plans, a major lobbying organization. “And then an employer has to be willing to fund it.”

There are perhaps only 15 to 25 large companies that could be described as active on the CAM front, says Raymond Fabius, chief medical officer for Truven Health Analytics. The company, which counts about 200 of theFortune 500 as clients, organizes companies’ health data from disparate sources (health care, pharmacy, lab, and disability claims, as well as health-risk appraisals, worker’s compensation, etc.) into a single repository enabling detailed analyses.

Many employers, ... spend most of their time focused on benefit design, Fabius says. Another group is moving toward the position that containing those costs partly involves managing workers’ health. Then there is a small cadre that feels health costs are really not a cost but an investment in workforce productivity. “And it’s a subset of those that are engaged in broad-based efforts to elevate employees’ health and wellness, including CAM efforts,” he says.

But what, exactly, does “complementary and alternative” medicine mean? Definitions differ widely, from Parker Hannifin’s to those that refer mostly to behavioral therapies.

For example, Johnson and Johnson, long regarded as one of the most liberal companies on the CAM front, offers assorted tools addressing employees’ mental well-being. Employees can phone coaches who provide “mindfulness” treatments aimed at helping them relax and reenergize, says chief medical officer Fik Isaac. There are wellness professionals at many company locations who offer energy management, yoga, and other meditative approaches. 

J&J also covers acupuncture, Pilates, therapeutic massage, and the more controversial reiki, ... But when it comes to many of the items on Parker-Hannifin’s list, “they would be covered only if prescribed by health-care professionals as medical necessities,” Isaac notes. “What works, we apply. But broader coverage does not indicate better outcomes. Unless there is an evidence base, we wouldn’t provide coverage. And, from a scalability standpoint, the utilization of and yield from those services determine their cost-effectiveness.”

Fabius says he believes “strongly” that “bending the curve” on health-care costs — actually decreasing them rather than merely slowing their growth— requires a very comprehensive effort to create a culture of health. That may include acceptance of alternative therapies that help people with chronic or catastrophic illnesses, as well as other conditions.

“Things like meditation and even spiritual therapy can have a very significant [effect] on individuals and families,” Fabius says....

But many CAM practices are not covered "for good reason,” notes Fabius, who spent 10 years as a corporate medical director for Cigna, Aetna, and U.S. Healthcare. Not only is it important to prove the effectiveness of a treatment or therapy, there is also great pressure from companies to keep health-care premiums down, and “adding more things to the benefits package adds to the premium costs,” he said.

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A Solution to Our Country's Big Health-Care Problem?

 This is the first installment of a two-part series on the role of complementary and alternative medicine (CAM) in health-benefits plans. This article covers what’s likely the most extensive CAM program in Corporate America. Part 2 will present viewpoints from others in the corporate, medical, and insurance communities. (
October 30,2012
 David McCann

Parker Hannifin
Parker Hannifin (Photo credit: Wikipedia)
... Don Washkewicz, chief executive officer of the $13 billion manufacturer Parker Hannifin, had no clue mercury was a likely culprit behind his chronic intestinal discomfort and overall low energy until he underwent a full medical screening. There appeared to be no source for the condition other than his mouthful of “silver” fillings  which, like everybody’s, were about half mercury.

American Dental Association
American Dental Association (Photo credit: Wikipedia)
The American Dental Association and the mainstream medical community generally hold that there is virtually no risk of mercury intoxication from silver fillings. But Washkewicz’s mercury score was high, so he  underwent a process called chelation therapy, in which an injected enzyme cleanses one’s system of toxic heavy metals like mercury and lead. Before long he started to feel better.

As CEO of a Fortune 500 company  this year it’s ranked 216th Washkewicz could afford to have his old fillings replaced with nonmetallic composite ones and to undergo chelation. That was a good thing, because neither procedure was covered under Parker Hannifin’s health plan.

His next move was to check how many of the 35,000 fillings Parker Hannifin had paid for under its benefit plan the previous year were mercury-laden. The answer: 70%.

“I said, this is insane,” says Washkewicz, eight years later. “We’re poisoning our workforce, paying for it up front, then paying again later for the chronic conditions that result from being poisoned.” Parker Hannifin instituted a policy under which it covered less and less of the costs for silver fillings over the next few years. Now it pays nothing for silver, but 100% for composites.

More notably, Washkewicz’s experience was the genesis of a complete review of Parker Hannifin’s health benefits. The result of that has been a steady expansion since 2004 of procedures, treatments, and therapies covered under the plan (see a partial list, left). Many, unlike the CEO’s treatment of an existing condition, are preventive in nature. And most of the list consists of complementary and alternative (CAM) practices that are rarely covered by health plans. ...

A tug of war between conventional medicine and CAM medicine  much of which is aimed at preventing or treating illness and injury without drugs or invasive approaches  has been going on for decades. While CAM continues to grow in popularity among individuals, the corporate mainstream remains committed to covering only what’s been proven by evidence obtained through large, multiple, and rigorous clinical trials.

“Parker Hannifin is a big outlier, and in fact probably unique in its breadth of coverage,” says Ken Pelletier. A cardiologist by trade, he has been running The Corporate Health Improvement Program for 25 years. Now affiliated with the University of Arizona School of Medicine, the program helps large companies (though not Parker Hannifin) design customized health and wellness initiatives, often using a variety of CAM methods. But that doesn’t mean he offers a blanket approval of Parker Hannifin’s health strategy. (His objections, and other views on the subject of CAM versus traditional medicine, will be addressed in Part 2 of this series.)

7-4. Complementary & Alternative Medicines
7-4. Complementary & Alternative Medicines (Photo credit: Peter Morville)
... “I’m 100% positive we’re doing the right thing,” says Washkewicz, who is not a doctor but whose passion for CAM is driving much of the company’s approach to health care. “Allopathic [i.e., traditional] medicine doesn’t work very well. It treats symptoms instead of getting to the underlying problem. If the problem is high blood pressure, the solution is not a blood-pressure drug. The solution comes from finding out what is causing the high blood pressure. Maybe the person is low on magnesium or some other natural substance. But he or she surely is not low on this pharmaceutical drug.”

He stresses that he’s not bashing doctors. ... Nor does he mean to imply that every drug is useless: some pain medications, antibiotics, and thyroid drugs do have merit, the CEO thinks....

... “It’s not going to help us sell more of anything,” he says. “I just think this is the solution to our country’s big heath-care problem. If more and more companies were to do this, we’d have a healthier population and be able to spend money elsewhere instead of pouring all of it into health care.”

English: graph of age-adjusted percent of adul...
English: graph of age-adjusted percent of adults who have used complementary and alternative medicine: United States, 2002 (Photo credit: Wikipedia)
But what about the common wisdom that covering more services typically drives up the costs of a health-benefits plan?

Even after eight years, Parker Hannifin, which is quite decentralized and gives its divisions and locations a fair amount of operational autonomy, has not yet been able to aggregate cost impacts for the company as a whole.   ...

Says Washkewicz, “It’s early days, but we’re going to aggregate this and show the payoff in lower costs. And then we’re going to publicize the hell out of it. I know we’ll never be able to add up every dollar and penny, because how can you quantify the productivity lost from days missed and doctor visits? But we won’t need to account for every penny. There will be tremendous results.” ...

A big challenge for Parker Hannifin has been putting together a network of CAM practitioners accessible to the majority of its 27,000 workers at 350 locations in North America. ... In some of the more off-the-beaten-path places, practitioners of all the covered CAM services are simply not available.

It’s also important to Washkewicz that the program be on at least a “level playing field” with traditional medicine. That is, the company generally pays for 80% of its employees’ health-care costs, whether for conventional or CAM approaches. “It’s about choice,” he says. “If you are comfortable with the drugs your doctor prescribes, you can keep going to him. But if want to go with less invasive, more holistic, less toxic health care without being stuck on drugs the rest of your life, we’re offering a good place to start.”

Parker Hannifin recently hired a doctor specializing in CAM services, Sherri Tenpenny, to provide counsel on optimizing program results and recommend additional services for inclusion. She patiently went over each of the company’s CAM services with a CFO reporter, ... Most of the time, before going on to the next one, she offered the same comment: “Health plans don’t cover that. But they should.”

Tenpenny started out in emergency medicine and was an emergency-department director for 12 years. “As I started becoming aware of all the integrative CAM tools that are nontoxic and noninvasive but can’t be turned into billion-dollar industries, I spent a couple of years being really angry,” she says. ...
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Monday, November 12, 2012

What is your time worth?

CBS News:
LAURA VANDERKAM / MONEYWATCH/ November 9, 2012, 7:01 AM

(MoneyWatch) If a colleague dropped by your desk every day and asked you for $20, you probably wouldn't keep giving it to her. Yet many folks burn through 20 minutes waiting for tardy colleagues to start meetings, listening to stories that go on tangents, and responding to emails that never needed to be sent in the first place.
Why do we do that?
"We give away our time much, much, much easier than we give away our dollars," says Carson Tate, owner of Working Simply, a management consulting company that focuses on workplace productivity. "Until we quantify and make time as tangible as possible, like dollars in our pockets, it's really hard to make investment decisions." Indeed, time is often more scarce than money. ...We need to think about time "as a precious commodity we can't ever get back," says Tate. Here is her 3-step strategy for being better stewards of this resource.
1. Look at your investment statement. "Your calendar is your investment statement," says Tate. ... Look at where your time goes. How much time did you invest in doing those things you were hired to do? How much time did you invest in doing supporting tasks that help you stay close to the revenue line? And -- be honest -- how much time did you spend on completely unrelated activities?
2. Track your time. ... Now it's time to go deep in the weeds. Try keeping a time log for a few days, or a week if you can(that link goes to a spreadsheet you can get from my personal website, but you can also just use a regular Excel file or Word document, or a time-tracking app if you like). You'll start to see patterns -- when you have more energy, and when you're easily distracted. You can use this information to plan when to invest certain hours in certain projects to get the best payoff.
3. Align your time and goals. Think of your professional aspirations and the goals of your company. What do you want to do this week, this month, this year? At the end of the month, look at how you've spent your time, and if these investments paid off in your reaching your goals. ... If not, "What are you going to do differently?" asks Tate. ... Look at what has a payoff -- and put your time there.

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    Tuesday, November 6, 2012

    A Flare for Risk

     "A severe solar storm can cripple electrical grids, wreak havoc on our economy and cause trillions of dollars in damage and supply chain interruptions. Think it can't happen? It did in 1859, and in just the last five years, the Earth has been dangerously close to being hit with solar flares. "

    Risk & Insurance Online
    October 15, 2012
    By Kyle Beatty and Nicole L. Homeier

    "Never say never" is a well-known axiom ... but it applies perhaps most dramatically to the potential for catastrophic weather events. Although infrequent, they do happen -- at times with devastating results.

    IN SPACE - JANUARY 23:  In this handout from t...
    IN SPACE - JANUARY 23: In this handout from the NOAA/National Weather Service's Space Weather Prediction Center, shows a solar flare erupting from the sun late January 23, 2012. The flare is reportedly the largest since 2005 and is expected to affect GPS systems and other communications when it reaches the Earth's magnetic field in the morning of January 24. (Image credit: Getty Images via @daylife)

    The most severe space weather event in recorded history -- known as the Carrington Event -- took place in 1859. The largest geomagnetic storm on record, it electrified transmission cables, set fires in telegraph offices, and produced Northern Lights so bright that people could read newspapers by the glow. If a similar storm occurred today, according to a report by the National Academy of Sciences, it could cause $1 trillion to $2 trillion in damages to society's high-tech infrastructure and require four to 10 years for complete recovery. By comparison, Hurricane Katrina caused "only" a fraction of that damage.

    Quantifying the Risk from Severe Solar Storms

    Just how frequent are these extreme storms? According to records of past events, the earth experienced one occurrence in the last 150 years. Therefore, one might conclude the yearly chance of occurrence is one in 150. Some estimates suggest there is a 12 percent chance for an extreme storm to occur within the next 10 years, according to space physicist Pete Riley, senior scientist at Predictive Science in San Diego, Calif., writing in Space Weather. But these estimates ignore the physical details of electric grid risk. As a result, Atmospheric and Environmental Research is currently working with several insurance carriers to establish a much more rigorous view on this.

    Although our work is ongoing, we believe a Carrington-like event is not all that rare or even unlikely. ... In fact, severe space weather events have occurred much more recently. In March, the sun emitted the biggest solar flare in five years. Fortunately, the orientation of the solar storm's magnetic field meant it didn't damage electronic systems here on Earth. ... On July 23, a CME with a nearly unprecedented speed of 3400 km/s blasted from the Sun, and no matter the magnetic field direction, this would have a powerful impact on Earth. Again, we were lucky, the sunspot was facing away from Earth.

    Power Outage
    Power Outage (Photo credit: mrapplegate)

    One famous example of the grid effect from space weather occurred during the early morning hours of March 13, 1989. A blast of magnetized plasma from the sun triggered a powerful geomagnetic storm. The storm spawned electric currents in the ground and in power lines -- currents that rapidly incapacitated key power grid components. A portion of the Hydro-Quebec power grid failed in a cascade fashion. Several key pieces of equipment sustained damage, including two transformers that had to be removed from service. On the same day throughout North America and the United Kingdom, electrical disturbances barraged power grids for several hours. In New Jersey, a $12 million generation step-up transformer at the Salem nuclear plant suffered permanent insulation damage. ... [Workers] were able to install a spare transformer within a "short" six-month time frame. Over the next two years, there were 12 transformer failures in North America suspected to have resulted from to the storm. The outage was a chilling reminder of our reliance on electrical power -- and the vulnerability of our grid to geomagnetic storms.

    English: Simplified map of power distribution ...
    English: Simplified map of power distribution grid in United States with sections vulnerable to outage during to the larges geomagnetically induced current expected during 100 years of space weather. (Photo credit: Wikipedia)

    One cause for heightened concern is that the average age of transformers is significantly higher now than it was in 1989, meaning that the damage would be greater from a repeat of this scale of event. Also, in the 23 years since the Quebec grid sustained damaged, global companies and regional economies have increased reliance on the electrical grid dramatically, meaning the impact today of a similar solar event could be even more drastic.

    Artist's rendition of Earth's magnetosphere.
    Artist's rendition of Earth's magnetosphere. (Photo credit: Wikipedia)

    Strategies to Manage Risk

    In some ways preparing for a space weather outage is similar to outages from other causes. Strategies risk managers can use to mitigate power outage include:

    * backup generators for critical systems
    * redundant and co-located software and data systems, especially for revenue, customer-facing, and customer service operations
    * service interruption endorsements that cover utility outage
    * alternate suppliers for critical components or services, if supply chain risks are not covered

    Geomagnetic Storm In Progress
    Geomagnetic Storm In Progress (Photo credit: NASA Goddard Photo and Video)

    A long-term electrical outage caused by space weather could last for a week, a month, or even a year. There is no way to prevent an outage from striking your company. In this scenario, the financial exposure to the insurance industry escalates to an enterprise level. Losses can accumulate from multiple coverages and lines, and movements in the broad financial markets are likely.

    Insurers should start to address this issue by quantifying their company's financial exposure to service interruption events. ... AER scientists are now allowing risk managers to take a quantitative approach to evaluate the impact of both short-term and long-term power outages. In this context, short-term means hours or a day, with a recurrence interval of a few years.

    C3-class Solar Flare Erupts on Sept. 8, 2010 [...
    C3-class Solar Flare Erupts on Sept. 8, 2010 [Video] (Photo credit: NASA Goddard Photo and Video)

    At the primary insurer level, mitigation strategies for long-term outages might include:

    * Review your company's policy language ...
    * Implement loss control strategies, such as advising insureds to have preapproved business-continuity plans, including alternative locations for operations.
    * Evaluate the adequacy of aggregate cover insurance currently in place.

    The risk of a space weather-related power outage, for example, is lower in certain places in the United States. A company with multiple locations could have a business-continuity plan that includes relocation of critical functions to a safer area when the duration of the outage is uncertain. Data access at new locations is one of many factors to consider. Improved tools to quantify the risk open opportunities for carriers to provide new products or expanded coverages that previously were not feasible.

    IN SPACE - JUNE 7:  In this handout from NASA/...
    IN SPACE - JUNE 7: In this handout from NASA/Solar Dynamics Observatory, a solar large flare erupts off the sun June 7, 2011 in space. A large cloud of particles flew up and then was pulled back down to the sun's surface. According to NASA, the event is not suppose have any effect once the particles reach the earth on either June 8 or June 9. (Image credit: Getty Images via @daylife)

    Beyond financial exposure, another challenge posed by power outages is communication. Insurers need to consider how their own internal operations will proceed during such an event. ... Corporate reputation -- including a clear demonstration of risk readiness -- should be part of the company's enterprise risk management plan.

    When the next event strikes, companies that communicate pro-actively will establish themselves as trustworthy leaders in the eyes of their customers, employees, the media and local government.

    Insurers must remember that although the chance of a long-term space weather outage is modest, they cannot disregard it. When a long-term outage does occur, the cost will be staggering. In short, the lesson here may be to "never say never again."

    Kyle Beatty is vice president of the Business Solutions Division and Nicole L. Homeier is a staff scientist in remote sensing at Atmospheric and Environmental Research, a member of the Verisk Analytics family of companies.

    Copyright 2012© LRP Publications
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    Dead Money

    Cash has been piling up on companies’ balance sheets since before the crisis. (
    Economist Staff

    ...  In America, third-quarter profits and revenues for companies in the S&P 500 index appear to have fallen year on year for the first time since 2009, according to Thomson Reuters. Profits for roughly half the firms in the European Stoxx 600 have fallen short of expectations so far.

    ...  The four worries unnerving business are: the euro-zone crisis; upheaval in the Middle East; a possible recession in China; and America’s economic health and “fiscal cliff”—the combination of tax increases and spending cuts scheduled to occur at the end of this year.

    Net Income
    Net Income (Photo credit: Wikipedia)
    .. Investment has steadily risen since the recession ended, but not as vigorously as profits. In America, ... nominal capital expenditure this year (on an annualised basis) has risen by 6% compared with 2007; internal cash flow is up by 32%. ... Firms in the S&P 500 held roughly $900 billion of cash at the end of June, according to Thomson Reuters, down a bit from a year earlier but still 40% up on 2008.

    ... Japanese companies’ liquid assets have soared by around 75% since 2007, to $2.8 trillion, according to
    buried cash
    buried cash (Photo credit: rick)
    ISI Group, a broker. Cash stockpiles have continued to grow in Britain and Canada, too, ... “Dead money” is how Mark Carney, the Bank of Canada’s governor, has described the nearly $300 billion in cash Canadian companies now hold, 25% more than in 2008. Mr Carney admonished them to “put money to work and if they can’t think of what to do with it, they should give it back to their shareholders.”

    No single factor seems to explain companies’ high savings. The Bank of England notes that natural-resource companies account for a disproportionate share of the cash build-up. That may reflect the boom in commodities prices and the paucity of promising new sources of supply.

    Low interest rates have reduced borrowing costs, adding roughly a percentage point to American profit margins, according to BCA Research. ... The financial crisis has made firms more skittish about relying on banks or securities markets for funds. ...

    A rapid reversal is unlikely. That’s because rising corporate saving has deeper roots than the crisis, the commodities boom or this interest-rate cycle. In a recent study Loukas Karabarbounis and Brent Neiman at the University of Chicago found that across 51 countries they examined between 1975 and 2007, companies’ share of private saving rose in aggregate by 20 percentage points. In countries where corporate saving rose, labour’s share of GDP in the corporate sector shrank, by five percentage points in aggregate.

    Mr Karabarbounis and Mr Neiman link both rising corporate saving and labour’s shrinking share of GDP to a fall in the relative price of investment goods that began in the early 1980s. That drop may be down to the plunging cost of computing, or to the shift in capital-goods production towards lower-wage developing countries, or both.

    Whatever the reason, firms have responded by substituting away from labour and towards capital, and by more than textbook economic models imply. And to finance this investment companies have steadily boosted saving over time. ...

    The authors do not have comparable data for all 51 countries since 2007. But they do have numbers for the four largest economies (see chart). The data there show that the corporate share of private savings has since dipped a bit, in part because household savings have risen, although it remains high in absolute terms. (Labour’s share of GDP has stabilised at a low level.)

    The urge to save may be lessening. Japanese firms, with few growth prospects at home, have been making foreign deals. Marc Zenner of JPMorgan Chase notes that in the past 18 months firms that announce acquisitions have been rewarded with higher share prices.

    Yet even if they are loosening the purse strings a bit, companies are unlikely to abandon their frugal ways in the near future. Falling corporate-tax rates have increased the appeal of capital over labour; heightened uncertainty and capricious funding markets seem a recurring part of the landscape. That should make firms all the more determined to fund growth internally. Between now and 2016, GE expects to generate $100 billion in cash, enough to finance investment, acquisitions and dividends, and to buy back enough stock that shares outstanding will be lower than before the crisis. Asked recently if GE was tempted to spend more of its cash pile on acquisitions, Jeffrey Immelt, the chief executive, replied: “It’s not burning a hole in our pocket.”

    © The Economist Newspaper Limited, London (November 3, 2013)

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