Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
By now many of you have read such infamous pieces as the NYT essay on how General Electric has recently paid little to no U.S. federal government taxes. One wonders why the GOP, angry at 47% (53%?) of Americans who don’t pay federal taxes, does not get mad at our mega corporations for the same behavior…. after all, per the Supreme Court, corporations are people too. But I digress – I know the counter-argument – any tax on corporations just gets passed on to consumers. Plus U.S. corporations are already unfairly taxed at 35% 29% 26% 23% 19%… at least those with the correct lobbyists, mega accounting departments, and offshore havens spanning from Ireland, the Netherlands, Switzerland, or the Cayman’s. (or preferably all of the above plus more) Even companies that promise to do “no harm” (along with those doing “God’s work”) partake – and why should they not? That is the system they have paid for the politicians have weaved. Indeed, when policies were floated last summer for a flat corporate tax rate of 25% rather than the “onerous, job killing” 35% (which mostly only small business pays) lobbyist groups were formed (by the mega business community) to fight those ideas off. Literally laugh out loud stuff….
As many readers know by now, profits devoted to capital owners versus labor is at all time highs – which in my opinion is causing some (not all, not even most) of the stress (OWS, Tea Party) by the worker class of the country. But even with that mega terend of global labor arbitrage, the capital class is paying a far lower amount in taxes on said profits than pre-recession. Indeed, the difference is staggering. While profits have regained pre-recession highs, taxed paid on these profits are almost 50% lower! That’s impressive!
The WSJ reports:
- Here is one thing for deficit hawks to watch in 2012: corporate tax receipts. Although U.S. corporate profits have rebounded smartly since the financial crisis, the same can’t be said for the tax take. After plummeting from 2007 through 2009, U.S. corporate profits regained their precrisis peak in early 2010, according to the Bureau of Economic Analysis. The latest, revised data released just before Christmas showed corporate profits before tax rose to a record $1.97 trillion in the third quarter of 2011.
- But corporate tax receipts, as reported by the Treasury Department, remain lackluster. Although they have trended higher in recent months, corporate taxes measured on a 12-month basis were still under $200 billion in November. That is well below a precrisis peak of about $380 billion and still far below the government’s fiscal 2012 target of $332 billion.
- Why corporate receipts have grown so slowly is “really puzzling,” notes Ed Yardeni, chief economist at Yardeni Research. (Not really Ed: check K-Street for some clues) One big, possible factor: companies keeping more of their profits in overseas subsidiaries; they don’t pay U.S. taxes on them until they are repatriated. There is also a potential impact from special U.S. stimulus measures such as the 100% depreciation allowed in 2011 for some capital investment. This break, which expired at the end of December, allowed companies to take all the expense of an investment at once, lowering taxable profit, as opposed to spreading it over a number of years. A technical issue may also be at play. The BEA measures corporate profit on an operating basis. So this doesn’t reflect things like applying the benefit of losses racked up during the crisis to current profit, which would affect the Treasury data and could especially be an issue at financial companies.
There are other reasons aside from these – some very obvious which any casual reader of financial news knows about, and some quite awesome loopholes. I will bring along a story on the awesome tax games played with option expensing in the near future, as one of the thousands of corporate welfare we give to these “citizens”. 
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
