Where Do All Those Corporate Profits Go?

The Class War Chronicles by CK Patton

OK, so it’s no longer possible to hide the fact that a significant wealth gap has developed in this country. For those on the plus side, there's no time to feign even a modicum of chagrin; you’re too busy trying to rig the system to keep it this way.

2 years ago, The Occupy Movement shoved the issue of the wealth gap between the top 1% - especially the .001% - and the rest of us - into public discourse. But after 40 years of flat income growth for the majority, and a stagnant economy since 2007, the sheer magnitude of actual wealth inequality in this country remains {somehow) severely underestimated:

http://www.people.hbs.edu/mnorto/norton%20ariely%20in%20press.pdf

And while wealth disparity is currently at its most unequal since the 1920’s, it’s getting even worse:

From 2009 to 2011, average real income per family grew modestly by 1.7% … but the gains were very uneven....the top 1% captured 121% of the income gains in the first two years of the recovery. From 2009 to 2010, the top 1% grew fast and then stagnated from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011 Emmanuel Saenz Striking it Richer: The Evolution of Top Incomes in the United States

But let's focus on a more recently acknowledged element of the wealth gap story : the exploding share of US gross national income that’s going to corporations, due in large part to the tax avoidance schemes employed by these firms :


NY Times

Don't believe the hype (Vid) : most of the profits and wealth created in this country won't ever “trickle down” to the rest of us, but it begs the question : what the hell do they - the one percent and America's largest corporations - do with it all?


First...Who Are the One Percent???

By occupation, a third are the executives who run corporate America.. The second third are their financial professionals and lawyers - without whose politicking the great upward transfer would not be possible.

Alternet.org

Unsurprisingly, corporate executives find that a very popular receptacle for those expanding corporate profits turns out to be - themselves!


With 'corporate governance’ as feeble as it is, CEO-to-worker salary ratios have been obliterated, beginning their stratospheric take off in the Clinton years. ( part of the Democratic Party's deal with the devil to get back into power , now being questioned for the first time in 20 years )


Taking the logic a step further, we could say America's CEOs compete  with the US Treasury for dollars, since the reality is some firms pay their CEOs more than they pay in taxes. Think of it as a commission for keeping the prying hands of treasury of those offshore profits.


As some point out (below), outsize CEO rewards are obtained by “managing the tax code." (vid) The rewards of US lax tax policy are not spread evenly, though. They belong exclusively to the C-suite. When things go wrong though, blame is typically cast downward. So far.(Vid)


Economic Policy Institute, CEO Pay and the Top 1%, 2012


After taking good care of the CEO and his lieutenants, exerting financial pressure on politicians is another popular use of corporate funds. Not coincidentally, of the 25 companies that pay their CEO more than they pay Uncle Sam, 20 also spent more on lobbying lawmakers than they paid in corporate taxes. And 18 gave more to the political campaigns of their favorite candidates than they paid to the IRS in taxes. Executive Excess, Institute for Policy Studies, 2011


Why, we may ask, is corrupting the government such a passion for these firms? How about a 22,000% return, for starters?The form of legalized bribery known as ‘lobbying’ can be far more financially remunerative than investing in the building of new products and services. Or paying their workers a livable wage.Center for Responsive Politics

Another example of the kind of results throwing money at Congress can achieve : the 20% drop in the share of federal tax revenue paid by corporations over the last 50 years. These kinds of results are are not accidental.

Mother Jones


In order to pay as little as possible to support the United States' society that provides their educated workers, the reliable legal system they resort to regularly, the efficient – and tax-payer subsidized financial system and markets that create and protect their earnings, the fire and police protection at their factories, not to mention the military that protects their plants, and various overseas interests, General Electric employs a 1,000-member tax team to ensure their financial contributions to the US Treasury will be as negligible as possible. Propublica


Where else does corporate income go? What other uses of corporate funds are deemed worthy? How about dividends? Wall Street Journal reports that S&P 500 companies are projected to pay out at least $300 billion in dividends over 2013, compared to the $282 billion dished out last year, fueling the market rally that has pushed the Dow and the S&P 500 to records. But the wealthiest top 10% own 81% of stocks and mutual funds. So this turns out to be just another variant of the ‘let’s pay ourselves’ gambit. Who Rules America : Wealth, Income, and Power


Another idea - how about buying back shares?? What’s better than investing in your own company? As one analysis points out, most shares purchased through so called “stock buybacks” are bought at high prices, and often at the exact time when new shares are flooding the market due to the option grants to corporate execs. So executives first get the shares via options at a below market price. Then when the options vest these same executives get their companies to buy the shares back at a high price. It’s one of the many subtle rules in a game that that any American can play – so long as you're a top executive of a Fortune 500 company. Globaleconomicanalysis.blogspot.com

factset.com


Even though the numbers discussed so far have been in the billions, we’ve only been dealing in relative chump change. Now try this on for size:


Among the corporations making up the Fortune 500, 290 have revealed that they, collectively, held nearly $1.6 trillion in profits outside the United States at the end of 2011. For many U.S. corporations, the majority of “offshore” profits are really just profits made in the US that have been shifted to tax havens. Most corporations provide very little detail that would indicate whether their offshore profits result from real business operations abroad or from shifting profits (on paper) to tax havens.Think Isle of Man, not Isle of Wight (Vid) Citizens for Tax Justice, Fortune 500 Corporations Holding $1.6 Trillion in Profits Offshore, December 2012


Speaking of arcane tax rules that bypass the average investor,, these corporations , which include some of the country's best known names : GE, Microsoft, Apple, IBM, Coca-Cola and Goldman Sachs - don’t pay tax on their vast offshore income until it’s “repatriated” back into the US . While our infrastructure crumbles and schools go underfunded, CEOs who moan about deficits (urging cuts to Social Security and Medicare see “Deficit Hysteria”)) while they sit on mountains of overseas cash. They don’t want to bring back into this country because they don’t want to pay their fair share of taxes on it as Apple CEO Tim Cook recently explained to US Sen Carl Levin. (Vid)




AND LET’S HEAR IT FOR THOSE TOP 1% PATRIOTS


It's a peculiar patriotic fever that's been sweeping corporate America, as the largest US-based companies expanded their untaxed offshore stockpiles by $183 billion in the past year, increasing such holdings by 14.4 percent, according to data compiled by Bloomberg.

Sure, accuse of us of harvesting sour grapes.

You may wondering if the individually super-wealthy exhibit similarly patriotic leanings. This depends on whether you think stimulating the economy by spending $1.4 billion or so a year on luxury goods counts. In case you’re interested, there’s a shift going on up there in 1%-land, from buying art, jewelry, fancy cars and yachts – to what’s called experiential luxury - safaris, spas, and more personalized pampering during shopping or even while in the hospital.

beforeitsnews.com


Wealthy corporations and the nations' personally wealthiest individuals, in fact, share two significant characteristics (other than often being comprised of the same people):

    1. They use their cash to influence the government. We’ve already seen corporate lobbying payments, but those individuals who comprise the 1% are no slouches either : just 132 donors giving at least $1 million were responsible for 60.4% of all the money Super PACs raised in the 2012 cycle.  $71.8 million of Super PAC money came from for-profit businesses. Demos


    2. They love offshore tax havens : A significant fraction of global private financial wealth by our estimates, at least $21 to $32 trillion, as of 2010, has been invested virtually tax free through the world’s still expanding black hole of more than 80 “offshore” secrect [jurisdictions]Tax Justice Network, 2012 – The Price of Offshore REVISITED


So there you have it. Those among us who already have the most distinguish themselves by relentlessly trying to adjust the rules in their favor. At the same time, they stash their  fortunes overseas so as not to pay their fair share to operate and profit in the United States. This effectively drives the cost up for everyone else. Voila, public subsidies for the ultra-rich. And while there are patriots among the billionaire class eager to contribute more to society, the breathtaking greed of some is sowing the seeds of the next financial disaster. The impending fight over the Trans Pacific Partnership will be the test to see whether the tide can be turned. Stay tuned.

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