What’s going to reduce U.S. corporate savings?

Apple, Inc. has quite a bit of cash on its hands. The company has around a quarter of a trillion dollars in savings these days, with about 90 percent stashed overseas. The company saved cash at a rate of $3.6 million per hour in the final quarter of 2016. As The Wall Street Journal points out, this pile of savings has extra resonance these days, as the Trump administration and U.S. Congress consider reforms to corporate taxation. Apple is not alone in increasing its cash savings recently. In fact, there’s been a significant uptick in corporate savings over the past several decades. But what’s behind this trend? And would tax reform do much about it?

Research by economists Peter Chen and Brent Neiman at the University of Chicago and Loukas Karabarbounis at the University of Minnesota shows that the trend is global in nature. Corporations across high-income countries have increased their savings rates and are now lending more to the global economy than they are investing in their own operations.

How would a reduction in the corporate income tax change this situation? Potentially, a lower rate could induce some companies to boost their investments. Greg Ip at The Wall Street Journal looks at some international evidence on corporate tax cuts and finds that they seem to have boosted investment, though the effects on total growth are more muted. But note that not all corporate tax reforms or cuts are created equal. A pure rate cut isn’t going to have the same effect as a reduction in the dividend tax rate or a change in the treatment of business expenses.

But it’s worth noting that the tax cuts examined in these studies happened during a period of rising corporate savings. Those tax cuts may have done something to reduce the amount of corporate savings by boosting investment, but the overall trend is still upward. And in the United States, it appears that when corporations do spend money, they are increasingly using funds for buying stocks from shareholders or increasing dividends.

What, then, is behind the rise in corporate savings? Looking at research on the trend in the United States, the corporate savings problem seems to be caused less by a corporate tax rate that is “too high” and more by increased consolidation within industries and among shareholders. In the U.S. economy, both industry consolidation and “common ownership” of companies by institutional investors and mutual funds are more and more prevalent. Interestingly, the research by Chen, Karabarbounis, and Neiman finds that declines in corporate taxation actually pushed corporate savings up.

This research, in conjunction with the fact that corporate savings are up in parts of the world where policymakers did reduce corporate tax rates, signals the underlying lack of business investment is not due to the tax system. A tax cut may or may not boost investment, but it alone seems unlikely to unleash this stash of corporate cash in the long run toward more productive investments in the U.S. economy.