Offshore taxes and corporate borrowing: Google as poster child?

Today's Wall Street Journal reports that Google is borrowing $3 billion, despite the fact that they are sitting on $37 billion in cash already.

Greg Mankiw thinks this makes little sense to him:

Does this make sense for Google? I have no idea, and I am ready to concede that those guys are a lot smarter (and financially successful) than I am. But there is reason to be skeptical.

...

But ponder this question: If you had a friend with a paid-up house, would you suggest that he now take out a long-term mortgage in order to deposit the proceeds in a money-market fund? If not, does it make sense for Google to be doing much the same thing?

Later today, Greg posted an update from a reader suggesting a tax motivation for Google to borrow money rather than using its large cash hoard to fund future projects and acquisitions:

Update: A smart reader sends in the following plausible explanation:

While it's true that Google has $37 billion in cash and equivalents, almost all of that $37 billion is in non-U.S. accounts (an artifact of funneling most of their profits through low-tax Ireland). They cannot spend that $37 billion in the U.S. without incurring a tax rate of 35 percent; thus, the borrowing is to finance spending in the U.S. (as opposed to abroad). All the big tech companies do the same thing (Microsoft was in the news for the same thing some 6 months ago). Thus, Google is not trying to play the yield curve so much as intertemporally arbitrage the U.S. tax code. By not repatriating the $37 billion now, they are betting that the U.S. corporate tax rate on repatriated foreign profits will be appreciably lower in the future than it is now.

However, a Morningstar article report says:

The firm doesn't have the same issue with overseas cash that many of its large-cap technology peers do. Of Google's $37 billion in cash, only about $17 billion is sitting outside the U.S. Microsoft, by contrast, has no net cash remaining in the U.S., while nearly 90% of Cisco's cash is sitting outside of the country.

So perhaps Greg's "smart reader" is overstating the case when he says that Google has "almost all" its cash sitting outside the US.

Still, the financial markets apparently like Google's bet--their stock rose sharply this morning. As of this writing, Google stock is up 1.93% for the day--on an otherwise generally gloomy trading day--the Dow, S&P 500, Technology stocks in general, oil, gold, etc. are all down.

I do think there are some other intriguing tax angles to this story. Google's decision to issue debt may be tax-smart for a number of other interesting tax policy reasons besides the profit repatriation issue. More on those later.