March 29, 2020

Off the Charts: For Companies, the Good Old Days Are Now

During the same period, there never was a quarter when wage and salary income amounted to less than 45 percent of the economy. Now the figure is below 44 percent.

For companies, these are boom times. For workers, the opposite is true.

The government’s first estimate of corporate profits in the third quarter was released two days before Thanksgiving, at the same time it revised the rate of G.D.P. growth in the quarter down to an annual rate of 2.0 percent.

The report showed that effective tax rates, both corporate and personal, are well below where they were during most of the post-World War II era.

Corporate profits after taxes were estimated to be $1.56 trillion, at an annual rate, during the quarter, or 10.3 percent of the size of the economy, up from 10.1 percent in the second quarter. Until 2010, the government had never reported even a single quarter in which the corporate share was as high as 9 percent, as can be seen in the accompanying charts.

The government began calculating the quarterly figures on corporate profits in 1947, but it has annual figures back to 1929. Until last year, the record annual share was 8.98 percent, set in 1929. For all of 2010, the figure was 9.56 percent.

Wage and salary income was only 43.7 percent of G.D.P., the lowest number for any period going back to 1929. That figure first fell below 45 percent in 2009.

Compared with the final three months of 2007 — as the 2007-9 recession was beginning — wage and salary income was just 1.8 percent higher in the third quarter of this year. By contrast, overall corporate profits before taxes were 35 percent higher. With estimated corporate taxes just 1.5 percent higher, after-tax profits were up 49 percent. Those figures are not adjusted for inflation.

The corporate tax figures, which are estimates by the Bureau of Economic Analysis of the Commerce Department and are subject to revision, include state and local income taxes as well as federal income taxes.

In the quarter, corporate taxes amounted to 21 percent of corporate profits, a figure that is lower than in all but two previous periods, the first two quarters of 2009, during the recent recession.

During the half-century from 1960 through 2010, corporate taxes averaged almost 34 percent of net income, so the current figure is about a third lower than average.

Personal taxes as a proportion of total personal income was estimated at 14.1 percent for the quarter. The tax figure included state and local income taxes, taxes on personal property and the employees’ share of payroll taxes like Social Security. That figure is higher than it was in recent quarters but well below the 50-year average of 15.5 percent.

That increase came despite the government’s temporary reduction of some payroll taxes this year as a way to stimulate the economy.

The figures for wage and salary income arguably understate the cost of hiring, since they exclude both the employer’s share of payroll taxes and the cost of other benefits, like health insurance. Including those costs, total compensation of employees came to 54.3 percent of G.D.P. That figure is not a record low, but it is the smallest share for any period since 1955.

Floyd Norris comments on finance and the economy at

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