If you’re a numbers sort of person, I’d like to commend what I found to be a phenomenally good article written by Gordon Long of LCM Groupe on the U. S. government’s cash flow position to your attention. I’ll just consider one small part of the article. Scan down to the graph labelled “A Horrific Chart” and you’ll find this:
This alarming chart suggests one or more of three possibilities:
1- There is no relationship between corporate taxes and GDP.
2- Corporate pretax profits have seen near exponential growth over the last 30 years without being reflected in US taxes receipts.
3- Pretax corporate profits have become more and more an offshore phenomone.
I’d like to contribute one additional possibility to that list and put some flesh on the bones of the others.
The additional possibility is that the calculation of nominal GDP is wrong and I think there are good reasons to believe that’s true. The most important reason is that imports may be undercalculated. That may be hard to credit but I think it may be true. Intra-company transfers are not considered as imports and one of the implications of globalization is that components produced by a company’s overseas arms and transferred stateside via intra-company transfer don’t count. At least that’s the way it used to be and that’s the way I understand it. I’m more than open to correction on this.
If that’s the case, we’re overstating GDP something fierce.
Other possibilities include the likelihood that corporations, particularly large corporations, are able to engineer their books in such a way that they aren’t subject to tax or that somehow the areas in which large profits are being made aren’t subject to tax. Those would presumably be subsumed under Mr. Long’s points 1 and 2.
His conclusion is that the U. S. government may face a near term cash shortfall which will have serious implications both for interest rates and markets.
If you like lots of numbers, graphs, and charts, do read the whole thing.
Hmm, comment did not go through. I would just reiterate that this is kind of old news, but nicely summed up. I have long thought that we should do away with the corporate income tax. This just adds to data supporting this policy.
Steve