Leave the Hoarders AloneStephen L. Carter
March 1 (Bloomberg) -- The Connecticut General Assembly is considering a bill that would impose a “hoarders’ tax” on money that the state’s corporations are retaining rather than spending and use the proceeds for job-creation programs. As a resident of the state, I would like to register my objection.
The actual text of the legislation is about as thin as a bill can be: Not a single term is defined, and the amount of the tax isn’t specified. The details can, of course, be filled in by committee. More likely, the bill isn’t intended to go anywhere, and was introduced for symbolic effect.
Nevertheless, the proposal reflects a worrisome idea that has become all too common as our economy sputters along: the notion that those who choose not to spend are holding onto their money for maleficent motives and ought to be punished for it.
There is considerable political currency to the theory that we could boost employment and thus consumption if we could only pry loose the cash that the 1 percent is hiding in its mattresses. As the AFL-CIO explains on its website: “Since the Wall Street financial crisis, the largest U.S. non-financial corporations have amassed record levels of cash. But rather than investing these cash hoards to expand their operations and create jobs, many companies have shed workers in the United States.”
There’s that word again: “hoard.” Although in its original root (and even its correct definition) hoard describes the act of protecting one’s valuables, the image it’s meant to conjure in political usage is Scrooge, cackling as he rubs greedy hands together in front of his safe full of gold coins. The filmmaker Michael Moore was trying to paint this picture in a celebrated (if often misquoted) interview two years ago:
“They’re sitting on the money, they’re using it for their own -- they’re putting it someplace else. They have no interest in helping you with your life, with that money. We’ve allowed them to take that. That’s not theirs, that’s a national resource, that’s ours. We all have this -- we all benefit from this or we all suffer as a result of not having it.”
Consider for a moment the logic of the argument: Companies (and certain people) are holding onto cash rather than spending it. Spending it would be good for the economy. Let’s make them spend it and help the economy.
The trouble with the argument is that being miserly isn’t the same as being greedy. The greedier you imagine wealthy individuals and corporations are, the less likely it is that the money is just sitting there as they cackle in front of the safe.
Consider a greedy corporation -- by which we mean a corporation that seeks to maximize its profit. It will invest where it expects to earn the greatest return.
If the company isn’t investing as the fans of hoarders’ taxes would prefer -- in hiring -- the reason must be that the expected return is too low. The company might buy short-term Treasuries at about a quarter of 1 percent interest instead. Such a low rate of return suggests that the company believes that the return from additional hiring might actually be negative. Indeed, if it is already maximizing profit at its current level of employment, then by definition the marginal cost of the next employee will be greater than the employee’s marginal product.
If this is so, sensible policy for those who want companies to create jobs would be to figure out why adding employees reduces returns -- uncertainty over future policy, for example, or regulatory costs associated with hiring -- and to address that. Forcing the company to hire (or taxing it for not hiring) when additional hiring will reduce profit is simply a way of guaranteeing fewer companies.
Put all of that aside. If the problem is that the greedy corporation is doing the equivalent of stuffing money in the mattress, the hoarders’ tax isn’t looking in the right place for the cash. If you want to undo hoarding, go where the real hoarders are. And that isn’t the corporate boardroom.
According to the most recent Federal Reserve Flow of Funds Report, from the third quarter of 2012, nonfinancial corporations held more than $15 trillion in financial assets. The combined money-market shares, currency and deposit accounts held by these companies in totaled a little less than $1.4 trillion. This amount is dwarfed by the $53.6 trillion in financial assets held by households and nonprofit groups, including some $6.9 trillion in deposit accounts and $1 trillion in money-market funds.
In short, the big money isn’t being hoarded by for-profit companies. It’s being hoarded by nonprofits and individuals.
Now, one might respond that individuals are merely being prudent, saving for a rainy day, and nonprofits need substantial endowments so they can extend their missions into the future.
These aren’t bad arguments. But the management of a for-profit company can take precisely the same view on the best use of its assets. And a decision by companies or individuals to hold those assets in banks -- which in turn can make money only by lending, whether to individuals, companies or the government -- isn’t precisely the same as allowing them to sit idle.
I am not suggesting that it’s a good idea for companies to hold large amounts of cash. But there’s no justification for the proposition that for-profit companies have a particular obligation to hire when others aren’t, unless of course one wants to punish their owners for daring to want profit.
The economy is having a rough time, and the unemployment numbers have remained frighteningly and frustratingly sticky. There are many schools of serious thought on the reasons that hiring has been so slow to recover. But a hoarders’ tax isn’t a serious answer. If we want more private-sector jobs, we should aim economic policy at finding ways to make hiring productive.
(Stephen L. Carter is a Bloomberg View columnist and a professor of law at Yale University. He is the author of “The Violence of Peace: America’s Wars in the Age of Obama,” and the novel “The Impeachment of Abraham Lincoln.” The opinions expressed are his own.)
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