We are a gullible people, and have become more so with the evolution and development of ever more persuasive propaganda.  We accept many commonly popular economic or political “established facts” as truth almost without question. We forget or are ignorant of the fact that there are large well financed organizations in whose interest it is to provide us with information and views that will polarize our own thinking and values to parallel those of these powerful influences.  In effect we are provided with the scaffolding for an illusion which we fill in according to our own personal, but mainstream media propaganda and other organization-channeled input.  In creating such illusions it seems appropriate to paraphrase President Reagan’s comment: it’s not that we are ignorant, but that we know so much that simply isn’t so.

Corporate taxes

Corporate revenues and after-tax profits have grown unevenly, but at the admirable rate of 7.1% for at least five decades, which also provided impetus for high rates of investment return in the stock market over that period.  If America’s corporate tax rate was effectively the highest in the developed world, and was such a disadvantage, how were these corporations able to generate this decades-long record-breaking growth?  If our corporate tax rate was and still is such a disadvantage, how is it that American corporations have grown to become global powerhouses which today often have more influence than many sovereign nations, and essentially “dominate the world”. Could it be that the alleged disadvantage to American corporations is an illusion?

Corporations today are more powerful and influential than ever before. Corporate profit allows them to spend on research, product development, and increasingly efficient production facilities around the globe, and to purchase significant political influence in most foreign countries – where bribery is not considered as offensive or criminal as it appears to be in the US.  Of course it is not that we do not have corruption or bribery in the U.S., it is just that its greater criminalization in the states simply requires more adept facades at concealing its occurrence. Their economic power allows corporations to finance elections both domestically and internationally of chosen representatives who in turn can provide certain desired legislation for exclusions or reductions from restrictive regulations, which favorably affects profits or their taxation. The accepted fact that corporations are at a huge disadvantage relative to foreign countries is a well-crafted illusion.

According to the St. Louis FED data, growth of total U.S. corporate earnings over the 1965-2016 period grew from $55.2 billion in 1965 to $1,787 billion by 2016, compounding at a rate of 7.1%.  By comparison, growth of America’s GDP over 1948-2017 period was at 3.2%.  These statistics confirm that global expansion and productivity efficiencies allowed corporate earnings to grow rapidly relative to overall GDP growth.  

The following graph details this corporate earnings growth and compares it to the taxes corporations actually paid.  It is interesting to note that from the 1975-1995 period the actual effective tax rate appeared to come in at about a 33% rate; but this rate after turn of the century dropped dramatically to a rate ranging from the high teens to the low twenties per cent. 

Highlighting corporate earnings, taxes paid, and the effective calculated tax rate we show this data for specific years in the following table:

The dramatic observation here is that while the stated corporate tax rate was 35%, the actual tax rate allowing various exclusions and deductions turns out to be far lower.  The actual effective tax rate appears as having been close to the rate which the new tax code is likely to establish as the new legal burden.  Accordingly, under the new reduced rate, effective tax rates are likely to migrate to the low teens over the next few years.

In these graphs we used only eleven data points, quinquennially from 1965; this means that we do not show a dramatic spike or decline in earnings that may have taken place in the interim years. However, these data points show the level and trend of earnings and taxes well enough to demonstrate its true characteristics.

We also take a long-term look at the share of income taxes paid by corporations relative to that of individuals. 

Please note that these two graphs show similarities, because both graphs show corporate taxes, but the second graph is quite different.  The rapid rise in the blue line of second graph represents the rapidly increasing taxes that individuals have to pay relative to corporations.  This graph clearly shows that the tax burden over decades has shifted from corporations to the individual taxpayer, such that the burden corporate of taxes is visibly an illusion.  With this information available from both charts and the data table, we can surmise that in regards to corporate taxation “the corporation doth protest too much”.

The consumer driven economy and taxes

The American economy is universally acknowledged to be driven by the spending activity of its citizen consumers – that is, we have a consumer-driven economy.  How is it then that politicians, in a nearly unanimous voice, are clamoring more to reduce the tax rate for corporations as opposed to individuals?  Reducing the rate of tax for corporations does not add income to the consumer; therefore, it does little or nothing to stimulate the consumer-driven economy.  Corporations with more after-tax money will not create more jobs or produce more products, if consumers do not have considerably more disposable income.  Corporate management is too sophisticated to be drawn into spending to create more production facilities or domestic jobs without the very real prospect of having its products sold at a profit.