By a variety of measures, America’s corporations are experiencing record profits over the last couple of years. Indeed, profits to corporations amounted to 11 percent of the economy in the 3rd quarter of 2012, compared to 8 percent during the previous expansion.
Further, last year, corporations’ share of the national income was at its highest point since the 1950s, at 14.2 percent after the 3rd quarter of 2012, while the worker share of all income earned in the U.S. was at the lowest point since 1966.
But rather than invest that money at home in enterprises that create quality jobs for American workers, corporations are keeping the money on the sidelines. Last year, America’s 60 biggest companies sent massive amounts of money overseas – $183 billion – rather than keep it at home where it can keep American workers on the job. That adds up to a cumulative total of $1.7 trillion dollars in money controlled by U.S. corporations, but which is not invested at home.
Investors have benefited: The Dow has spent much of the year at or close to a record high, north of the 15,000 mark. Large-cap investors have more or less recovered from the recession, simply looking at stock and bond prices.
But the rich gains experienced by American corporations are not translating to prosperity for the American worker. Wages are still relatively depressed, the all-important labor-force participation rate has been falling, and unemployment is creeping back up. It’s currently at 7.6 percent, and would be much higher if it weren’t for those going on disability benefits and ‘discouraged workers.’
The economy created 195,000 jobs last month. But it was a more pathetic showing than the raw number indicated. Most of those jobs were part-time jobs, while the economy hemorrhaged full-time jobs.
Why is this? In part, blame Obamacare. Employers face stiff penalties if they fail to provide workers logging over 30 hours a week with a qualified health insurance plan, under the ill-advised law. And so they are responding rationally by slashing full-time staff and replacing them with part-timers. As one observer put it, your local “Taco Bell just went from 30 employees working 40 hours each to 40 employees working 30 hours.”
Incidentally, the new dismal unemployment numbers came out on Friday, the 5th of July. Coincidentally (not!) the Obama Administration moved to delay the onset of the coverage requirement to – conveniently – after the Congressional midterms. They also hid the announcement at the onset of the extended 4th of July 4 day weekend, hoping no one would notice. (We did!)
You can also blame a brutal U.S. tax policy, with regard to C corporations, which is all the publicly traded ones. The U.S. has the highest corporate income tax rate in the world, bar none, at 40 percent. Only Japan comes close, and they aren’t exactly tearing the economic cover off the ball. What this means is that no sane company would bring profits earned overseas back to the U.S., only to get to keep only 60 cents on the dollar, when they can continue to reinvest them in, say, Ireland, which only charges 12.5 percent tax.
So that money is going to hire foreign workers, not American workers, and instead of getting 25 or 30 percent of a workers net earnings (including Social Security taxes), the federal government is generally getting 40 percent of nothing on this money.
Democrats, however, have been resisting calls for a tax amnesty period or across-the-board cut in the corporate income tax rate, however.
The CFO Journal also notes a structural issue that deters corporations from investing accumulating cash in job-creating endeavors: The increasing uncertainty of the stock market, with troubles in IPOs (Facebook!) and evidence of massive insider trading by favored clients in the high-frequency trading world have combined to increase the equity risk premium. In plain English, this means that acquisitions of companies are trickier. Acquisitions are a time-honored way for companies to rescue others, or to breathe new life into stagnant enterprises who lack the capital to carry out their business plans.
That latter part isn’t going away any time soon. But Obamacare and our confiscatory tax rates on foreign earnings are self-inflicted wounds.