Thursday, July 7, 2011

Recovery for corporations - the hallowed "supply side" is doing just fine

Even the Wall Street Journal reported the "supply side economics free lunch" of tax cuts as a means of increasing government revenues effectively dead back in 2003.  After George W. Bush cut taxes, the conservative-leaning Congressional Budget Director, Douglas Holtz-Eakin, couldn't come up with figures showing tax revenues increasing in the wake of the tax cuts.  If the goal - as initially stated - was to fight the projected surplus in government solvency, it worked brilliantly.

That argument is over - at least among normal folks who aren't on ideological crack. But the persistent argument remains that cutting taxes for corporations generates essential capital that will be directed to creating new jobs - that increasing corporate profitability inevitably leads to a robust, growing economy and employment for just about anyone willing to work.

There certainly may be particular, targeted scenarios - such as cuts in employer payroll taxes or credits tied to new employment  - where the desired effect of job-creation can be enhanced by tax breaks, but overall evidence for a rebound of corporate profitability as the magic bullet that will get us out of a deep jobs slump appears slim to non-existent.

Andrew Leonard at Salon has the facts and figures:
The theory of supply-side economics tells us that if you cut taxes on rich people and corporations, the newly liberated moguls and businessmen will take their windfall and invest it, creating jobs and accelerating the rate of economic growth…
Ever since Ronald Reagan first attempted to make supply-side economics a reality and proceeded to inaugurate an era of persistent government deficits and growing income inequality, it has become harder and harder to make the trickle-down argument with a straight face. But we've never seen anything quite like the disaster that's playing out right now.

The Wall Street Journal reported on Tuesday that corporate profits are looking quite strong for the second quarter of 2011. Even the Journal can't sugarcoat the basic facts:
While the U.S. economy staggers through one of its slowest recoveries since the Great Depression, American companies are poised to report strong earnings for the second quarter -- exposing a dichotomy between corporate performance and the overall health of the economy.  ...
A newly released study from the Center of Labor Market Studies at Northeastern University, "The 'Jobless and Wageless' Recovery From the Great Recession of 2007- 2009," lays out some extraordinary statistics. (Hat tip: The Curious Capitalist.)

In the first quarter of 2011, aggregate U.S. GDP -- the total value of all the goods and services produced in the United States -- was higher than the peak reached before the recession began in 2007. During the six quarters since the recession technically ended in the second quarter of 2009, real national income in the U.S. increased by $528 billion. But the vast majority of that income was captured as profit by corporations that failed to pass on their happy fortunes to their workers.
Over this six quarter period, corporate profits captured 88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income. The extraordinarily high share of national income (88%) received by corporate profits was by far the highest in the past five recoveries from national recessions ... In the first six quarters of recovery from the 1990-91 recession, corporate profits experienced no growth whatsoever, and they generated on average only 30 per cent of national income growth during the recoveries from the 1981-82 and 1973-75 recessions.    ...
Wages are moribund, unemployment is stuck at 9 percent, and the corporate bottom line is doing just fine. You could be excused for thinking that if ever there was time to put the stake through supply-side economics, it would be now. Wall Street and big corporations are doing just fine, but absolutely nothing is trickling down.
And yet Republicans are still pushing the same old song and dance, passionately holding the entire creditworthiness of the United States hostage in return for even lower taxes on corporations, adamantly refusing to countenance even the slightest revenue increase to help cushion the hard times for the Americans who are getting a raw deal out of the current recovery…

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