Hoarders: Corporate Cash Edition

One of the main issues of contention in the debate over continued corporate tax slashing has been the question of what the business sector will do with more free money. And Erin's post makes it clear just how much capacity has already been taken out of any productive use by being funnelled into corporate coffers instead:

Statistics Canada figures indicate that private non-financial corporations held $471 billion of cash in the first quarter of 2011 ($322 billion of Canadian currency plus $149 billion worth of foreign currency). Including short-term paper would bring this total to half a trillion dollars, enough to pay off the national debt (i.e. accumulated deficit).

Cash hoarding is a critical point in the debate about corporate taxes. If incremental after-tax profits are being deposited (rather than reinvested or paid out), lower corporate tax rates likely just produce higher piles of cash.

If corporate Canada already has half a trillion dollars more than it wishes to invest in physical or financial assets, there is no reason to expect that corporate tax cuts will boost investment. On the contrary, if the government collected more of this money and invested it directly, Canada would have more investment in total.
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As Eric Pineault showed graphically and Statistics Canada shows numerically, corporate Canada’s overall approach for at least two decades has been to stockpile ever more cash through good times and bad (with only very rare and slight exceptions). Advocates of corporate tax cuts have not provided a consistent or convincing explanation of how accelerating this ongoing cash accumulation benefits the Canadian public.