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Corporate profit bonanza Judd Legum

Published

6 months ago

April 2, 2024

In the last three months of 2023, after-tax corporate profits reached an all-time high of $2.8 trillion. This is part of a long-term growth in corporate profits that began in the 1980s, picked up steam at the turn of the millennium, and exploded since 2020.

Notably, the surge in corporate profits since 2020 has been fueled, in part, by expanding corporate profit margins. Last year, corporate profit margins (excluding the financial sector) were over 15%, a level not seen since the 1950s. This is because the increases in prices for goods and services have outpaced the increase in costs — both labor and non-labor — for corporations.

According to an analysis from the Groundwork Collaborative, “corporate

profits drove 53 percent of inflation during the second and third quarters of 2023 and

more than one-third since the start of the pandemic.” In the four decades prior to the pandemic, corporate profits contributed to just 11% of price increases.

Theoretically, this should not happen. Corporations should not be able to dramatically increase their profit margins by increasing prices because competitors should step in with lower prices and steal market share. So what’s going on?

Greg Ip, who writes about economics for the Wall Street Journal, suggests that corporations are collectively taking advantage of consumer psychology. Supply shocks related to the pandemic created widespread cost increases that consumers accepted. Although those supply shocks have dissipated, many businesses have maintained higher prices anyway. “If people are paying $3 for a dozen eggs last week, they’ll pay $3 this week. And firms take advantage of that,” Yale University economist Mike Sinkinson explained.

This kind of informal collusion works best in concentrated industries. The Groundwork Collective highlights the diaper industry, where “Procter & Gamble Co. (P&G) and Kimberly-Clark Corp. control 70 percent of the domestic market.” Since the onset of the pandemic, “[d]iaper prices have increased by more than 30 percent” — from $16.50 per package to nearly $21. This was initially driven by an increase in the price of wood pulp, a key input for diapers but also paper towels and toilet paper. But since January 2023, prices for wood pulp have declined by 25%.

But P&G and Kimberly-Clark are not reducing diaper prices. Instead, they are bragging to investors about their massive profits. In July 2023, P&G “predicted $800 million in windfall profits because of declining input costs.” In October 2023, Kimberly-Clark acknowledged that its input costs were coming down, but said that its products were still “priced appropriately.”

Similar dynamics are playing out in many other industries, including “new and used cars, groceries, and housing.”

How corporations are using their windfall

It’s possible for corporate profits to be used productively to fuel innovation and growth. But that doesn’t appear to be happening. Economist Christian Weller notes that corporations are using their record profits “mainly to pay dividends to their shareholders and building up their stockpiles of cash.”

Between December 2019 and December 2023, non-financial corporations used almost half of their pre-tax profits (48.9%) to pay dividends to investors. That is the highest share of corporate profits devoted to dividends since the 1950s. The same group of corporations now has $7.2 trillion in cash, up from $6.1 trillion in 2019, adjusted for inflation. Meanwhile, capital expenditures — which is a key way corporations invest in the future — are at historic lows relative to profits.

The path forward

In light of these record corporate profits, the government has a few choices. It could choose to raise corporate tax rates and use the funds to help people in need, such as children in poverty. In March, President Biden released a proposal that would raise the corporate tax rate from 21% to 28%. Biden’s proposal also includes raising the minimum tax for corporations with $1 billion in profits or more from 15% to 21%.

The government could also choose to maintain the current corporate tax rate of 21 percent, which was established by the Trump Administration in 2017 in the Tax Cuts and Jobs Act. Trump wants voters to believe that if he is reelected, he will not prioritize corporate tax cuts. In January, Bloomberg reported that Trump plans to “keep[] corporate tax levels unchanged in an appeal to working and middle[-]class voters.” Stephen Moore, an economic advisor to Trump, told the Washington Post that Trump “said that he really wants to focus more on small businesses than corporations” and that “he’s fine with the corporate rate where it is.”

The government could also choose to cut the corporate tax rate even further and facilitate even larger corporate profits. Trump has expressed interest in lower corporate tax rates, perhaps as low as 15%. Project 2025, a blueprint for Trump created by the Heritage Foundation and a large coalition of conservative groups, suggests cutting the corporate income tax rate to 18%.

Substacks

October 7, 2024 Heather Cox Richardson

Published

15 mins ago

October 8, 2024

Substacks

October 3, 2024 Heather Cox Richardson

Published

15 mins ago

October 8, 2024

Former Republican representative Liz Cheney of Wyoming joined Vice President Kamala Harris on a stage hung with red, white, and blue bunting and signs that said “Country Over Party.” As Cheney took the stage, the crowd chanted, “Thank you, Liz!” The two were on the campaign trail today in Ripon, Wisconsin, the town that claims to be the birthplace of the Republican Party. It was in that then-tiny town in 1852 that Alvan E. Bovay, who had recently emigrated from New York, called for a new political party to stand against slavery.

The idea of a new party took off in 1854 when it became clear the Kansas-Nebraska Act permitting the westward expansion of human enslavement would become law. When they met in February of that year, people in Ripon were early participants in the movement of people across the North to defend democracy. Rather than standing against slavery alone, those organizing in 1854 stood against an entire political system, opposing the small group of elite enslavers who had taken over the U.S. government in order to establish an oligarchy and were quite clear they rejected the self-evident truth in the Declaration of Independence that all men were created equal. Instead, they intended to rule over the nation’s majority, whose labor produced the capital that southern leaders believed only elites should control.

In the face of this existential threat to the country, party divisions crumbled.

Pundits have described today’s event as a component of Harris’s ongoing outreach to Republicans, and in part, it is. That outreach, begun under President Joe Biden and continuing even more aggressively under Harris, is bearing fruit as in an open letter today, two dozen Republican former officials and lawmakers in Wisconsin endorsed Harris and her running mate Minnesota governor Tim Walz. “We have plenty of policy disagreements with Vice President Harris,” the Republicans wrote. “But what we do agree upon is more important. We agree that we cannot afford another four years of the broken promises, election denialism, and chaos of Donald Trump’s leadership.”

Lately, there have been indications of what returning Trump to office might mean.

On Tuesday, Trump suggested that the U.S. soldiers who sustained traumatic brain injuries (TBI) when Iran attacked an Iraqi base where they were stationed were not truly injured, but simply had “headaches.” Trump’s statement brought back to light a 2021 CBS report by Catherine Herridge and Michael Kaplan that found the injured soldiers had not been recognized with a Purple Heart, awarded to service members wounded or killed in the line of duty, despite qualifying for it. This slight meant they were denied the medical benefits that come with that military decoration.

The soldiers told Herridge and Kaplan that they were pressured to downplay their injuries to avoid undercutting Trump’s attempt to keep the casualty numbers in that incident low. With the story back in the news, Kaplan posted that after the report, the Army awarded the soldiers the Purple Hearts they deserved.

Journalist Magdi Jacobs recalled the argument of Trump’s lawyers before the Supreme Court that Trump could not prod a SEAL team to assassinate a rival because service members would adhere to the rules of their institutions. The Army officers’ bowing to Trump’s political demands proved that argument was wrong and set off “[m]ajor alarm bells,” Jacobs posted, suggesting that the military would not stand firm against Trump in a second term, especially now that the Supreme Court says a president cannot be prosecuted for crimes committed as part of official duties.

Scott Waldman and Thomas Frank of Politico’s E&E News covering energy and the environment reported today that two former White House officials said that Trump was “flagrantly partisan” when responding to natural disasters. One said that in 2018 Trump refused to approve disaster aid after wildfires to California, perceiving it as a Democratic state. To get disaster money, the aide showed Trump polling results revealing that Orange County, which had been badly damaged in the fires, “had more Trump supporters than the entire state of Iowa.”

Defending the Big Lie that Trump had won the 2020 presidential election, former Colorado county clerk Tina Peters in 2021 gave a security badge to a man associated with MyPillow owner Mike Lindell to enable him to breach the county’s voting systems in an unsuccessful attempt to find evidence of voter fraud. A jury found Peters guilty of four felonies related to the scheme. Today, District Court Judge Matthew Barrett sentenced Peters to nine years in prison.

But there are other stories these days of what the government can accomplish when it is focused on the good of all Americans.

About 45,000 dock workers in the International Longshoremen’s Association went on strike Tuesday when the union could not reach an agreement with the United States Maritime Alliance (USMX) employer group over a new contract. The strike shut down 36 ports from Maine to Texas, affecting about half the country’s shipping just as the areas hammered by Hurricane Helene desperately needed supplies. Dockworkers wanted a pay increase of up to 77% over six years and better benefits, as well as an end to the automation that threatens union jobs.

President Joe Biden reiterated his support for collective bargaining despite the threat to an economic slowdown from the strike. The Wall Street Journal editorial board excoriated Biden and the union, saying: “President Biden wants unions to have extortionary bargaining power, and he’s getting a demonstration of it on election eve. Congratulations.”

But today the International Longshoremen’s Association suspended the strike after USMX agreed to wage increases of 62% over six years. The two sides agreed to extend the current contract until January 15 to address the issues of benefits and automation. Administration officials White House Chief of Staff Jeff Zients, top White House economic advisor Lael Brainard, Acting Secretary of Labor Julie Su, and Secretary of Transportation Pete Buttigieg helped broker the temporary agreement.

The government’s power to make things better is also on display amid the rubble and ruin left behind by Hurricane Helene. Yesterday evening, after taking an aerial tour of western North Carolina to survey the damage and receiving a briefing in Raleigh, President Biden thanked both “the Republican governor of South Carolina and the Democratic governor of North Carolina and all of the elected officials who’ve focused on the task at hand. In a moment like this, we put politics aside. At least we should put it all aside, and we have here. There are no Democrats or Republicans; there are only Americans. And our job is to help as many people as we can as quickly as we can and as thoroughly as we can.”

Biden explained that the federal government had 1,000 first responders in place before the storms hit, and that he had approved emergency declarations as soon as he received the requests from the governors. Yesterday he directed the Defense Department to move 1,000 soldiers to reinforce North Carolina’s National Guard to speed up the delivery of supplies like food, water, and medicine to isolated communities, some of which are accessible now only by pack mule.

He has already deployed 50 Starlink satellites for communication, and more are coming.

Teams from the Federal Emergency Management Agency are offering free temporary housing, as well as delivering food and water. They are helping people apply for the help that they need.

While Trump and MAGA Republicans insist that Biden is botching the response to Helene, CNN fact checker Daniel Dale noted that the response has gotten bipartisan praise. Republican governors Henry McMaster of South Carolina and Glenn Youngkin of Virginia both thanked Biden by name for what McMaster called a “superb” response.

So today’s bipartisan event in Ripon suggests far more than Democratic outreach to Republicans. It appears to be a commitment to a government that advances the interests of ordinary people, and protects the right of everyone to be treated equally before the law and to have a say in their government. Republican Abraham Lincoln articulated this worldview for his fledgling party in 1859 as it took a stand against oligarchs. Believing these principles accurately represented the aspirations of the nation’s founders, Lincoln called them “conservative.” People from all parties rallied to the party that promised to defend those principles.

“The president of the United States must not look at our country through the narrow lens of ideology or petty partisanship or self-interest,” Harris said today. “The president of the United States must not look at our country as an instrument for their own ambitions. Our nation is not some spoil to be won. The United States of America is the greatest idea humanity ever devised: the nation that inspired the world to believe in the possibility of a representative government. And so in the face of those who would endanger our magnificent experiment, people of every party must stand together.”

“In this election, putting patriotism ahead of partisanship is not an aspiration. It is our duty,” Cheney said. “I ask all of you here and everyone listening across this great country to join us. I ask you to meet this moment. I ask you to stand in truth, to reject the depraved cruelty of Donald Trump.

“And I ask you instead to help us elect Kamala Harris for president. I know…that…a president Harris will be able to unite this nation. I know that she will be a president who will defend the rule of law, and I know that she will be a president who can inspire all of our children—and if I might say so, especially our little girls—to do great things. So help us right the ship of our democracy so that history will say of us, when our time of testing came, we did our duty and we prevailed because we loved our country more.”

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Notes:

https://wisconsinexaminer.com/briefs/wisconsin-gop-group-launches-pro-harris-campaign-with-open-letter/

https://www.pbs.org/newshour/politics/watch-live-liz-cheney-joins-harris-campaign-rally-in-ripon-wis

https://apnews.com/article/kamala-harris-cheney-wisconsin-trump-89396853e5521c3870a3c88e04cbfd99

https://www.npr.org/2024/10/02/nx-s1-5137349/kamala-harris-liz-cheney-wisconsin-little-white-schoolhouse

https://www.texastribune.org/2024/10/02/adam-kinzinger-republicans-colin-allred-texas/

https://www.eenews.net/articles/helene-isnt-the-first-time-trump-inserted-politics-into-a-natural-disaster/

https://thehill.com/homenews/state-watch/4914462-colorado-county-clerk-sentenced-election-breach/

https://www.cbsnews.com/news/purple-heart-us-soldiers-iran-al-assad-air-base-attack-traumatic-brain-injury/

https://www.wsj.com/opinion/international-longshoremens-association-strike-ports-labor-union-president-biden-a586363d

https://www.cnbc.com/2024/10/03/port-strike-ends-as-workers-agree-to-tentative-deal-on-wages-and-contract-extension.html