A tale of two economies

David Cay Johnston has a piece today at The National Memo that should put an end to the notion that unleashing the corporate monster will make our economy whole. Rather, giving corporations a free reign does little more than allow those at the top of the economic heap to reap even more benefits, while the rest of us struggle with unemployment, underemployment and a shredded safety net.

As Johnston reports,

Individual income tax payments have been rising fast since the economy began to recover, even though wages have hardly budged.

For corporations of all sizes, the story is quite difference, however.

For the vast majority of America’s 5.8 million corporations, profits soared in 2010 — up 53 percent compared to 2009 — when the recession official ended at mid-year. Despite skyrocketing profits, however, their corporate income tax bills actually shrank by $1.9 billion, or 2.6 percent.

The effective tax rate paid by 99.95 percent of companies fell to 15.9 percent in the robustly profitable year of 2010, from 24.9 percent in the half-recession year 2009.

Those figures do not count the 2,772 companies that dominate the American economy. These giant firms, with an average of $23 billion in assets, own 81 percent of all business assets in America.

Their combined profits soared 45.2 percent to a new record in 2010, but their taxes rose just 14.8 percent, new IRS data show. Profits growing three times faster than taxes means their effective tax rates fell.

In 2010 these corporate giants paid just 16.7 percent of their profits in taxes, down from 21.1 percent in 2009. The official tax rate is 35 percent.

Corporations, as we can see, are doing quite well. So, how about the rest of us? The national unemployment rate remains at 7.6 percent, which is lower than at nearly any point during the Obama administration but still about 2 percentage points above pre-recession levels. The under-employment rate — or the percentage of people who are out of work, stopped looking or working part-time when they would prefer full-time employment — according to Money Morning, “climbed to 14.3% from 13.8%. The number of ‘involuntary part-timers’ jumped by 322,000 to 8.2 million.”

This is, quite simply, the tale of two economies. Corporations are doing quite well, but the rest of us continue to struggle. The argument we consistently hear from the anti-tax crowd is that we need to take the shackles off businesses — in the form of taxes and regulations — so that businesses can generate profit, which then will trickle down to the rest of us in the form of jobs and higher wages. Yet, we are living in a time of record corporate profits AND higher-than-acceptable unemployment.

Doesn’t anyone else see the contradiction?

Send me an e-mail.

Author: hankkalet

Hank Kalet is a poet and freelance journalist. He is the economic needs reporter for NJ Spotlight, teaches journalism at Rutgers University and writing at Middlesex County College and Brookdale Community College. He writes a semi-monthly column for the Progressive Populist. He is a lifelong fan of the New York Mets and New York Knicks, drinks too much coffee and attends as many Bruce Springsteen concerts as his meager finances will allow. He lives in South Brunswick with his wife Annie. View all posts by hankkalet