Posts Tagged ‘corporations’

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A couple of weeks ago, I discussed a recent study about class and air rage. In the meantime, things have only gotten worse—on the ground.

Most people attempting to fly these days are forced to endure long security lines, all the while knowing that airlines are raking in enormous profits ($25.6 billion last year, a 241-percent increase from 2014) with low fuel costs, lots of additional fees (for baggage, reservation changes, food and drink, and much else), and shoe-horning economy-class passengers into tighter and tighter spaces.

Gail Collins is absolutely right:

The airlines have maximized profits by making travel as miserable as possible. The Boeing Company found a way to cram 14 more seats into its largest twin-engine jetliner by reducing the size of the lavatories. Bloomberg quoted a Boeing official as reporting that “the market reaction has been good — really positive.” We presume the market in question does not involve the actual passengers. . .

Rather than reducing the number of bags in security lines, the airlines would like the government to deal with the problem by adding more workers to screen them. And the perpetually beleaguered Transportation Security Administration is going to spend $34 million to hire more people and pay more overtime this summer. Which, it assured the public, is not really going to solve much of anything.

(Who, you may ask, pays for the security lines anyway? For the most part you the taxpayer do. Also you the passenger pay a special security fee on your tickets. Which Congress tends to grab away from the T.S.A. for use in all-purpose deficit reduction. I know, I know.)

A spokesman for Delta Air Lines, which took in more than $875 million on baggage fees last year, told The Atlanta Journal-Constitution that bowing to the extremely modest Markey-Blumenthal request for a summer suspension of the baggage fee wouldn’t “really help alleviate a lot.” It would also, he said, require a “considerable change to the business model.”

Heaven forfend we mess with the business model.

So, this summer, we can expect more rage not only in the air, as economy-class passengers are forced to put up with physical inequality on airplanes, but even before they get on the plane, knowing the extra fees they pay and the long security lines they’re compelled to endure are part of the airlines’ “business model.”

And that model is not about people, but only about profits.

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The folks at the Federal Reserve Bank of St. Louis find a correlation between inequality and stock prices. And, to their credit, they get half of the story: rising stock prices (and therefore increasing returns on equity wealth) have contributed to increasing inequality in the United States.

Comparing stock prices with the Gini coefficient provides further evidence of financial movement with income inequality. The steady increase in U.S. income inequality from the 1970s through the early 2000s was accompanied by strong gains in the stock market. The S&P 500 composite index grew from 92 in 1977 to over 1476 in 2007—about a 140 percent increase. These gains were huge. By comparison, the gains in the prior 30 years (1947-77) were only 50 percent. The correlation between the Gini coefficient and stock prices from 1947 to 2013 is strongly positive. As stock prices rise, the gains are disproportionately distributed to the wealthy. Lower- and middle-income families who are also wealth-poor are less likely to expose their savings to the higher risks of equity markets.

What they don’t get is the other side of the story: rising inequality has caused higher stock prices. A combination of higher profits for large, publicly traded corporations (which has served to boost the underlying returns on equity and allowed corporations to engage in stock buybacks) and a larger share of income going to the top 1 percent (as their share of the surplus has risen, which allowed them to purchase even more shares) fueled the increase in stock prices.

Once we put both sides of the story together, the conclusion is clear: rising inequality in the United States has been both a condition and consequence of rising stock prices from the late-1970s onward.

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As the New York Times [ht: sm] points out,

This year the Republican and Democratic nominating conventions in Cleveland and Philadelphia will be bankrolled entirely with money from corporations and wealthy individuals. Not since the Watergate era, when a $400,000 pledge to the 1972 Republican convention from ITT Corporation was linked to a favorable outcome for the company in a federal antitrust decision, has this happened. . .

The 2012 Republican convention in Tampa, Fla., cost about $74 million. That didn’t include millions more that corporate lobbyists spent on parties and concerts with top-name entertainment that took place outside the convention hall, and off-limits to TV cameras. The 2012 Democratic convention in Charlotte, N.C., cost about $66 million. Democrats tried to limit corporate sponsorship that year, but that didn’t lead to less spending. The convention instead went into debt, which Duke Energy, one of the nation’s largest electric power providers, paid off by forgiving a $10 million loan.

This year, the two political parties together will most likely spend upward of $150 million on their conventions, all of it paid by private entities.

This summer, two cities in the United States will thus be able to host the best parties money can buy.

April 25, 2016

Special mention

holb_c14077820160428120100 Thank You For Yoiur Suggestion

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Posted: 29 April 2016 in Uncategorized
Tags: , , , , ,

DJIA

Capitalism is, if anything, remarkably unstable.

Yesterday, the Dow Jones Industrial Average dropped more than 200 points (a bit more than 1 percent). And, today, it’s already down more than half that amount—and headed lower.

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What’s going on?

Well, for one thing, corporate profits are declining.

U.S. corporate profits, weighed down by the energy slump and slowing global growth, are set to decline for the third straight quarter in the longest slide in earnings since the financial crisis.

Weakness was felt across the board, with executives from Apple Inc. to railroad Norfolk Southern Corp. and snack giant Mondelez International Inc. saying the current quarter remains tough. 3M Co., which makes tapes, filters and insulation for consumer electronics, forecast continued weak demand for that industry. Procter & Gamble Co.reported sales declines in its five business categories despite price increases.

And that’s exactly how capitalism works: corporations got exactly what they wanted in the early years of the recovery—with cheap financing, low wages, and foreign sales, which fueled high profits. And now those same conditions are coming back to bite them. And so they’re deciding to engage in less investment, which is further slowing growth and cutting into profits.

As we know, under capitalism, what goes up must come down—even for capitalists and their profits.

oxfam

Yesterday, I argued that the U.S. tax system is broken. That’s because many corporations pay no federal taxes and, even when they do, the effective rate is much lower than the statutory rate.

And that’s just on the tax-revenue side. On top of that, as Oxfam (pdf) shows, U.S. corporations received a wide variety of subsidies. For example, from 2008 to 2014, the top 50 U.S. corporations collectively earned $4 trillion in profits, paid $412 billion in federal taxes, and received $11.2 trillion in support in the form of loans, loan guarantees, and bailout assistance from the federal government.

There is no doubt that data from this time frame is shaped heavily by the federal programs, like the auto-bailout and TARP, that were created to deal with the largest economic crisis since the Great Depression. Additionally most loans and bailouts are paid back in full with interest. There are also relevant distinctions to be made between companies and sectors on their tax practices and their receipt of federal support.

Companies benefit in different ways from federal investments and from tax laws, only some of which are revealed in the data Oxfam analyzed. The data also does not show the value of other forms of federal support that companies receive beyond loans, loan guarantees and bailouts.

Nonetheless, the data is useful to observe in aggregate because it puts in stark relief the taxpayer financed benefits large companies in general enjoy in relation to the taxes they pay.

In addition, those same corporations hold $1.4 trillion in offshore cash reserves, which are not subject to taxation. And they spent roughly $2.7 billion on lobbying from 2008 to 2014.

That means for every $1 they invested in shaping federal policy through lobbying, they received $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts.

Those breaks indicate that not only is the U.S. tax system broken; so, too, is the political system.

Except, of course, for U.S. corporations.

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The other day, I wrote that, while the United States government is not broke, corporate income taxes represent a small percentage of total federal tax revenue and they’ve been steadily declining for a very long time.

And that’s because, as demonstrated in a new study by the U.S. Government Accountability Office (as requested by Senator Bernie Sanders), a large percentage of U.S. corporations pay no federal income taxes.

In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability. Larger corporations were more likely to owe tax. Among large corporations (generally those with at least $10 million in assets) less than half—42.3 percent—paid no federal income tax in 2012. Of those large corporations whose financial statements reported a profit, 19.5 percent paid no federal income tax that year. Reasons why even profitable corporations may have paid no federal tax in a given year include the use of tax deductions for losses carried forward from prior years and tax incentives, such as depreciation allowances that are more generous in the federal tax code than those allowed for financial accounting purposes. Corporations that did have a federal corporate income tax liability for tax year 2012 owed $267.5 billion.

Keep that in mind the next time someone claims that the U.S. corporate tax rate needs to be lowered. The fact is, effective tax rates are much lower than statutory rates. Thus, for example, the statutory tax rate on net corporate income ranges from 15 to 35 percent, depending on the amount of income earned. For tax years 2008 to 2012, profitable large U.S. corporations paid U.S. federal income taxes amounting to, on average, only 14 percent of the pretax net income that they reported in their financial statements.

Thus, the country is not broke—but the tax system, especially when it comes to large corporations, certainly is broken.