Shipping US Jobs Overseas: It's Clearly a Bush Thing

I think that the shipping of US jobs overseas by large multinational corps is the main reason for the present very high US unemployment rates, the very high US underemployment rates, and the lower median income for the middle class. It is also probably the main reason for the tepid US real GDP growth. And it is one of the main reasons for the huge US Deficit and huge US Government Debt.

This shipping of US jobs overseas isn't just manufacturing jobs. It also is non-manufacturing technology jobs. And the shipping of all kinds of US service jobs overseas has also been growing substantially.

This offshoring trend isn't just due to lower labor costs, but also due to the substantial tax holidays given to US multinational corps by many countries all throughout the world.

But just when did the financially devastating offshoring of US jobs occur? Well, only 18% of this offshoring occurred before the Bush/Cheney Presidential years.

And this offshoring really accelerated starting in 2004, when the US Congress passed the foreign earnings repatriation legislation, making 85% of foreign earnings repatriated tax free for US federal income tax purposes, which resulted in an effective tax rate on these earnings of an amazingly low 5.25%, for a one-year period. And every Republican in the US Congress voted for this 85% tax free foreign earnings repatriation legislation. Because of this very favorable legislation, large multinational corps repatriated a huge $360 bil in the one-year window period allowed by this legislation.

Yeah, 82% of the shipping of US jobs overseas happened starting in the laissez-faire Bush/Cheney Presidential years. The Obama Administration, from the very start, attempted to sharply reduce this offshoring of US jobs by trying to close the related corporate tax loophole of tax deferral, but the Big Multinational Corps, and their Republicans shills in the US Congress, stopped them in their tracks.

Recently, the Democrats in the US Senate tried to pass legislation which would curb this awful offshoring trend by large multinational corps, and perceptively even took it a step further by providing tax incentives for multinational companies to Reshore or Backshore these jobs to the US. Every Republican in the US Senate voted against this critical legislation, thereby stopping it in its tracks. I find it interesting that on the top of page 2 of the Wall Street Journal on Wednesday, Sept 29th, there is a picture there where Republican Senators John Thune and Lamar Alexander are smiling profusely about being successful in stopping this critical legislation, and thus permitting US Big Corps to again trump the US unemployed. I find such an open display of elation at the plight of workers laid off by offshoring obscene. I am sure many unemployed and underemployed feel likewise.

So clearly, the financially devastating shipping of US jobs overseas is on the Republicans. 82% of it happened after Bush/Cheney took office. And since the Democrats were in control, they tried to substantially reduce offshoring, but were stopped in their tracks by Republicans.

Thus if offshoring is important to you as a voter in the Nov 2010 election, why vote against Democrats running?....they are nearly all very staunch opponents of shipping US jobs overseas. Instead, you would want to vote against Republicans running...they are the 100% supporters of Big Multinational Corps and their massive offshoring of US jobs, which played a major role in creating the 2000s Lost Decade and its many horrible financial aftershocks.

Let me show how I got to the only 18% of this offshoring happening before the Bush/Cheney years.

Here are the 30 companies that had Total Unremitted Foreign Earnings above $10 bil at the most recent fiscal year end (2009 and 2010) and at predominantly the end of the Clinton Presidential years, thus at the end of fiscal year 2000:


..............................FYE.........FYE
............................2009-10...2000(or closest date disclosed)
...........................In Billions of Dollars
GE............................84.0........15.0 (at Dec 2002)
Pfizer.......................42.5.........14.0
Exxon Mobil.............42.0.........14.0
JNJ...........................32.2..........9.5
Cisco Systems...........31.6..........0.4
Merck.......................31.2..........9.7
Procter & Gamble.....30.0..........8.8
Microsoft..................29.5..........0.0
Citigroup...................27.3..........1.5
IBM..........................26.0.........15.5
PepsiCo.....................21.9..........7.5 (Dec 2002)
Abbott Labs..............20.6..........2.4
Chevron...................20.5..........3.3
Coca Cola.................19.0..........3.7
Schlumberger...........18.0..........4.0
Bank of America........16.7..........1.1
Bristol Myers Squibb.16.5..........6.0
Hewlett Packard........16.5.........11.5
Goldman Sachs..........16.2..........0.2 (Nov 2002)
JP Morgan Chase.......15.7..........1.4
Eli Lilly.....................15.5..........5.2
Apache.....................15.3..........0.9
Amgen......................14.3..........0.4 (Dec 2002)
Walmart....................13.7..........1.0 (Jan 2002)
Oracle.......................13.0..........0.9
Medtronic.................12.4..........0.2
Google......................12.3..........0.0 (Dec 2004)
Dell...........................11.3..........4.1 (Jan 2003)
DuPont......................11.3..........8.9
Intel..........................10.1..........4.2

Total of these 30.....687.1.......155.3

And then to get to the 18%:
(in billions of dollars)
....................................................2009-10.......2000
Total of these 30...........................$ 687.1.......$155.3 (4.42 times)

Total of all cos...............................$1,600........$362 (4.42 times)
Plus Foreign Earnings Repatriated
........in 2005 85% tax free..............$..360
.....................................................$1,960........$362 = 18%

Big US Corps Unremitted Foreign Earnings Continue Going to the Moon in 2010

Back on March 4, 2010, I made a post here that identified 606 US Multinational Corps that had unremitted foreign earnings exceeding $50 mil each, that totaled $1.263 trillion. This information was taken from income tax footnotes in SEC filings for companies with fiscal year ends of January 2010 or earlier. A very high percentage of these companies have December 2009 year ends.

Further in this March 4, 2010 post, I pointed out that this $1.263 trillion was just for companies that disclosed these amounts of unremitted foreign earnings and that my best guess was that the total unremitted foreign earnings for all companies was $1.6 trillion. I then projected what the total unremitted foreign earnings for all companies would be at the end of 2016, the end of President Obama’s second term, assuming nothing changed and the past trend continued. From a past sample, I concluded that the average annual growth of unremitted foreign earnings was 16.4%, and thus this $1.6 trillion would turn into $4.6 trillion by the end of 2016.

What has happened since then? Well, there have been 13 US Multinational Corps with unremitted foreign earnings of at least $2 bil, that have filed with the SEC for their fiscal year ends of March 2010 through July 2010. For these 13 companies, the total unremitted foreign earnings were $149.7 bil, up an incredible 32.8% above the comparable amount one year earlier.

Yeah, that’s right, the annual growth of total unremitted foreign earnings for these 13 companies of 32.8% was precisely double the 16.4% average annual growth assumption I used earlier. When you double an already high average annual growth rate of 16.4%, the number, when compounded over many years, goes to the moon. Just to show the math here, if you use an average annual growth rate of 32.8%, the $1.6 trillion grows to an amazing $11.7 trillion by the end of 2016, rather than the $4.6 trillion when using my previous 16.4% annual average growth rate assumption.

Let me show the details of these 13 large US Multinational Corps, with fiscal years ends from March 2010 to July 2010:

…………………….Unremitted Foreign Earnings at Fiscal Year End
…………………………......2010…..2009…..2008…..2007…..2006….
………………………………….......In billions of dollars……………
Cisco Systems…………....31.6…….24.1…..21.9…...16.3…….11.1
Procter & Gamble……....30.0……25.0…..21.0…...17.0……16.0
Microsoft…….................29.5…...18.0…….7.5…....6.1……...0.5
Oracle……......................13.0….....8.9…….7.2…....5.7……...3.0
Medtronic……................12.4….....9.7…….8.3…....6.6……...5.4
News Corp…....................6.8….....5.3…….6.9…....5.0……...5.0
Archer Daniels Midland...6.6….....6.0…….4.9…....3.6……...2.2
Forest Labs......................4.1….....3.4…….2.3…....1.6……...1.0
Western Digital................4.0….....2.5…….2.2…....1.1……...0.8
Heinz…............................3.7….....3.3…….3.3…....3.1……...2.5
Nike…..............................3.6….....2.6…….1.8…....1.2……...0.9
McKesson........................2.3….....1.8…….1.5…....1.1……...0.8
General Mills....................2.1….....2.1…….2.2…....1.5……...1.0
Total 13 Companies…...149.7…..112.7….91.0…..69.9…….50.2
Annual % Growth……...32.8%....23.8%...30.2%...39.2%

It's pretty clear to me that the substantial offshoring of US jobs by large US multinational corps is the main reason for the US unemployment and US underemployment rates being so incredibly high, the main reason for the real US GDP growth being so tepid, and also one of the main reasons the US Federal Deficit is so large. And this horrible present economic environment is when the total Unremitted Foreign Earnings is $1.6 trillion. If this total spikes up to $4.6 trillion by the end of 2016, people will be saying that the really good economic times for the US were in 2010! And if this total explodes upwardly to $11.7 trillion by the end of 2016, the country and the majority of its citizens will be facing a financial catastrophe. The only winners here would be the Big US Multinational Corps and their stockholders.

President Obama’s economic team now has wise proposals to deal with the very complex financial disaster caused by the massive offshoring of US jobs, and the resultant shifting of both income and real GDP growth overseas, and also the resultant depletion of both the US Federal Treasury and the US middle class. Their plan is to wisely close much of this corporate tax loophole, and use the massive proceeds from this action to spur US economic growth and US job creation.

It's clearly a stroke of genius. How can it get any better than when your funding for US job creation closes corporate tax loopholes that have themselves been a severe drag on the US economy for the entire 2000s Lost Decade?

And the crazy thing here is that there are many in the US Congress who are fighting this tooth and nail. They are more interested in helping their US Big Multinational Corp constituency than they are in helping the US economy grow and desperate US citizens find jobs. Frankly, I think that anyone who doesn't want to head off a total Unremitted Foreign Earnings number in the range of $4.6 trillion to $11.7 trillion by the end of 2016, with the resultant US financial disaster, is being unpatriotic. No one can be that financially naive. And if any of them are that incredibly financially naive, they don't belong in the US Congress.

This is the main reason that it is in the country's best interests to have both the US Senate and the US House in Democratic hands. If not, the chances of turning this horrible US economy around drops dramatically, and the chances of the total Unremitted Foreign Earnings of Big US Multinational Corps continuing to increase dramatically to in the range of $4.6 trillion to $11.7 trillion in six years, with the resultant US financial catastrophe, increases substantially.

I trust the judgment of US citizens. They won't let the US Congress stop the Obama economic team in its plan to wisely stem this massive offshoring of US jobs. I think history will show that Obama’s economic team saved the US economy from a complete financial disaster caused by this massive offshoring of US jobs by Big US Multinational Corps. US Citizens should be very thankful. My hunch is that a lot of the credit here should go to Austan Goolsbee, who is much more than just a theoretical academic economist.

Let me show why US Multinational Corps are so highly incentivized to offshore US jobs. It's not just about lower wages and lower employee benefit costs overseas. Just looking at the above 5 largest companies, below here are the annual foreign tax breaks each has received over the most recent five years. These foreign tax breaks, which directly increase reported earnings, which drives the Corp's stock price, are from the impact of getting foreign tax rates below the US federal statutory corporate income tax rate of 35%:

………………………………….Annual Foreign Tax Breaks…………
…………………………....2010……2009…..2008…...2007…..2006….
…………………………………........In millions of dollars……………....
Microsoft……………….3,027…..1,843…..1,667…..1,025……840
Cisco Systems…………1,817…...1,454…..1,651…...1,211……664
Procter & Gamble…….1,129…..1,023…..1,012……..633…….447
Oracle……………………....672……..673……..569……..580…….426
Medtronic………………...663……..505……..526……...453…….345
Total 5 Companies….7,307…..5,499…...5,425…..3,902…2,722
Annual % Growth…….32.9%......1.4%....39.0%.....43.4%

The reason Fiscal Year End 2009 growth is so low is due to the much lower income due to the horrible global recession in that year.

Now let me focus on the 114 US Multinational Corps that had Unremitted Foreign Earnings of at least $2 bil, which resulted in total Unremitted Foreign Earnings of $1.052 trillion. Of these 114 companies, 13 had information that was either missing in their disclosures or had an unusual disclosed amount. For the remaining 101 companies, here are the total Unremitted Foreign Earnings at the most recent fiscal year end (2009 or 2010) and for the four immediately preceding years, along with their related percentage increase from the immediately preceding year:

2009-2010…..$906.7 bil…..+20.4%
2008-2009…..$753.3 bil…..+21.6%
2007-2008…..$619.6 bil…..+32.4%
2006-2007…..$467.9 bil…..+38.4%
2005-2006…..$338.1 bil

It should also be pointed out that in 2004, the previous Administration and its controlled US Congress, incredibly passed a measure allowing US Multinational Corps to repatriate their foreign earnings with a massive windfall tax-free 85% Dividend Received Deduction for a one-year period. As a result, more than $300 bil of these foreign earnings were repatriated by US Multinational Corps, and yes, a gigantic amount of US federal corporate income tax previously owed by these Corps was forgiven. This has to go down in history as one of the biggest boondoggles of all time. And it substantially added to the 2000s Lost Decade for the US economy.

How many US jobs were created from this $300 bil of foreign earnings repatriation by US Multinational Corps? Well, there were a few companies that added US jobs, but when you combine all companies doing this massive amount of foreign earnings repatriation, you get a net of US jobs lost, rather than a net of US jobs created. I kid you not! No doubt, Big Corp lobbyists are still chuckling about that one.

I think the right thing to do now would be for US voters to do some research and vote against anyone running in the November 2010 election, who voted in 2004 for this Big Multinational Corp forgiveness of US federal corporate income taxes. It's been a while, but I am pretty sure that every Republican in both the US House and the US Senate voted for this 85% Dividend Received Deduction on Foreign Earnings Repatriation. I would be very skeptical of any Republican running now who claims that he is not for this 85% Tax-free Dividend Received Deduction on Foreign Earnings Repatriation when 100% of them voted for it back in 2004. And what this vote did was incentivize US Multinational Corps to do even more offshoring of US jobs. Heck, why not, when I can in all likelihood get 85% of these very low-taxed foreign earnings repatriated to the US tax free.

And then lastly, below here at the end of this post are the Unremitted Foreign Earnings amounts at the most recent fiscal year end for all 114 companies, which had Unremitted Foreign Earnings of at least $2 bil each.

To show how this is so front end loaded, there are only 13 Corps with Unremitted Foreign Earnings above $20 bil each, which comprise a healthy 42% of the total, only 32 Corps with total Unremitted Foreign Earnings above $10 bil each, which comprise a very healthy 68% of the total, and only 56 Corps with total Unremitted Foreign Earnings above $5 bil each, which comprise a substantial 84% of the total Unremitted Foreign Earnings for all 114 companies.

I think I wouldn’t give any Dividend Received Deduction for Repatriating their Foreign Earnings for any of these very large companies with Unremitted Foreign Earnings above a certain level. People a lot smarter than me can determine what the cutoff amount should be here. I would instead focus the incentivized Dividend Received Deductions on the smaller and medium-sized global companies.

I also wouldn't give any huge US Corp above a certain size either a 100% tax writeoff from plant and equipment investments or an annual research tax credit unless it was also 100% funded by some fair measure of additional US taxes owed from foreign earnings repatriation by this same huge US Corp in the same year.

Further, I think I wouldn't let any global US Corp have a US untaxed Unremitted Foreign Earnings amount above a certain level....perhaps some maximum like $20 bil....again, people much smarter than me can determine what a fair cutoff amount would be. And then whenever a company has its Unremitted Foreign Earnings above $20 bil, a foreign earnings repatriation would be automatically triggered for US corporate income tax purposes, with the resultant additional US tax owed. The CBO-scored positive US funding over the next ten years from just this simple provision would be off-the-charts, and should be used to fund immediate US job creation and US Deficit Reduction.

Anyway, here are the Unremitted Foreign Earnings of these 114 companies at the most recent fiscal year end:

1 GE.......................... $84.0 bil
2 Pfizer...................... $42.5 bil
3 Exxon Mobil.......... $42.0 bil
4 JNJ....................... $32.2 bil
5 Cisco..................... $31.6 bil
6 Merck..................... $31.2 bil
7 Procter & Gamble... $30.0 bil
8 Microsoft................. $29.5 bil
9 Citigroup................. $27.3 bil
10 IBM...................... $26.0 bil
11 PepsiCo.................. $21.9 bil
12 Abbott Labs........... $20.6 bil
13 Chevron................. $20.5 bil
14 Coca Cola................ $19.0 bil
15 Schlumberger........ $18.0 bil
16 Bank of America..... $16.7 bil
17 Hewlett Packard..... $16.5 bil
18 Bristol Myers Squibb $16.5 bil
19 Goldman Sachs........ $16.2 bil
20 JP Morgan Chase... $15.7 bil
21 Eli Lilly.................. $15.5 bil
22 Apache.................. $15.3 bil
23 Amgen................... $14.3 bil
24 Tyco Electronics.... $14.0 bil
25 PMI....................... $14.0 bil
26 Walmart................. $13.7 bil
27 Oracle................... $13.0 bil
28 Medtronic.............. $12.4 bil
29 Google................... $12.3 bil
30 DuPont................... $11.3 bil
31 Dell........................ $11.3 bil
32 Intel...................... $10.1 bil
33 Boston Scientific..... $9.4 bil
34 McDonald's............. $9.2 bil
35 Caterpillar.............. $9.0 bil
36 Dow Chemical......... $8.7 bil
37 Qualcomm............. $8.6 bil
38 Alcoa.................... $8.1 bil
39 Xerox.................... $8.0 bil
40 Ebay...................... $7.9 bil
41 Corning.................. $7.3 bil
42 News Corp.............. $6.8 bil
43 Baxter.................... $6.8 bil
44 American Express...... $6.6 bil
45 Archer Daniels Midland $6.6 bil
46 Danaher................... $6.5 bil
47 Ingersoll-Rand......... $6.0 bil
48 Kimberly Clark......... $5.8 bil
49 Kraft......................... $5.7 bil
50 Illinois Tool Works.... $5.7 bil
51 3M............................ $5.6 bil
52 Occidental Petroleum. $5.5 bil
53 General Motors.......... $5.5 bil
54 Praxair...................... $5.3 bil
55 Honeywell.................. $5.1 bil
56 Apple......................... $5.1 bil
57 Eaton......................... $4.9 bil
58 Emerson Electric......... $4.3 bil
59 EMC............................ $4.3 bil
60 Bunge.......................... $4.2 bil
61 Valero Energy.............. $4.1 bil
62 Forest Labs.................. $4.1 bil
63 Western Digital............. $4.0 bil
64 Murphy Oil................... $4.0 bil
65 Morgan Stanley............ $4.0 bil
66 Johnson Controls......... $3.8 bil
67 Berkshire Hathaway..... $3.8 bil
68 Heinz........................... $3.7 bil
69 Nike............................. $3.6 bil
70 Mattel.......................... $3.5 bil
71 International Paper....... $3.5 bil
72 Monsanto..................... $3.4 bil
73 Hess............................. $3.4 bil
74 Franklin Resources........ $3.4 bil
75 Thermo Fisher Scientific $3.2 bil
76 Stryker.......................... $3.2 bil
77 Gilead Sciences.............. $3.2 bil
78 Texas Instruments.......... $3.1 bil
79 Paccar........................... $3.1 bil
80 Marsh & McLennan......... $3.1 bil
81 EOG Resources................ $3.0 bil
82 CBS................................. $3.0 bil
83 Air Products & Chemicals $3.0 bil
84 Agilent Technologies....... $3.0 bil
85 US Steel........................... $2.9 bil
86 GMAC.............................. $2.9 bil
87 Colgate Palmolive........... $2.9 bil
88 National Oilwell Varco..... $2.8 bil
89 Goodyear Tire & Rubber... $2.8 bil
90 Celgene............................ $2.8 bil
91 Celanese.......................... $2.8 bil
92 Ensco.............................. $2.6 bil
93 Becton Dickinson............. $2.6 bil
94 TRW Automotive Hldgs.... $2.5 bil
95 Whirlpool........................ $2.4 bil
96 Overseas Shiphldg Grp..... $2.4 bil
97 Motorola........................ $2.4 bil
98 Dole Food Co................... $2.4 bil
99 McKesson....................... $2.3 bil
100 Baker Hughes................. $2.3 bil
101 United Parcel Service..... $2.2 bil
102 Biogen Idec.................... $2.2 bil
103 Avon Products............... $2.2 bil
104 Allergan........................ $2.2 bil
105 General Mills................. $2.1 bil
106 ConcoPhillips................ $2.1 bil
107 Black & Decker................ $2.1 bil
108 Aon................................ $2.1 bil
109 AGCO.............................. $2.1 bil
110 Yahoo............................. $2.0 bil
111 Western Union................. $2.0 bil
112 Pride International.......... $2.0 bil
113 PPG Industries................ $2.0 bil
114 Carefusion....................... $2.0 bil

Total 114 Companies....... $1,051.9 bil

Obama 3-Pronged Initiative Enhances US Status as Worldwide Economic Powerhouse

Like JFK’s visionary economic initiatives under pretty similar circumstances about a half century ago, I think President Obama’s very recent bold, visionary economic initiatives will turn this long-lasting US jobless, tepid recovery into a long-lasting, robust private sector job-creating economic recovery.

The three main items he is now proposing is just the right mixture of near term, medium term and long term economic initiatives:
…..100% Tax Writeoff of Plant and Equipment Investments….near term economic jolt
…..Research Tax Credit Made Permanent…..near term, medium term, and long term innovation and certainty
…..Transportation Infrastructure Investments…..near term, medium term, and long term foundation to facilitate business growth

I think this three-pronged economic stimulus will immediately and substantially enhance the status of the US as a Worldwide Economic Powerhouse. It builds up the necessary infrastructure and provides high powered tax incentives to markedly elevate primarily two critical US industries…..Technology and Manufacturing. It will put these two US industries, as well as many other US industries, in much better positions to effectively compete in the world economy.

And this economic initiative here is fully paid for by wisely closing a small portion of the many Big Corp tax loopholes, that have served as an unfortunate drag on the US economy.

Without this bold economic initiative, I think that real US GDP growth would be in the 0% to 1% range for the 4Q 2010 and also for all of 2011. Assuming the 100% writeoff of plant and equipment is effective starting today, Sept 8, 2010, through the end of 2011, I think that real US GDP growth will be bumped up to average in the 4% to 6% range for the next five quarters (i.e. 4Q 2010 and all of 2011), and to average in the 2.5% to 4.5% range for many years thereafter. And the single most important driver of US deficit reduction is robust, long-lasting real GDP growth.

It will take a bit longer on the job front. Given the just horrible financial aftershocks to the US structural economy resulting from the 2000s Lost Decade, without this bold economic initiative, I don’t think you’ll see US unemployment below 9% or see the total US unemployment and underemployment rate below 15% through the end of President Obama’s second term.

With this bold economic initiative, and assuming it also includes both new plant facility investments and existing plant facility remodeling costs, as well as also including some wise measures to better insure that the 100% plant and equipment writeoffs by businesses also directly result in full-time payroll count increases and subsequent employee retention by these same businesses, I see a substantial increase in private sector jobs right away, which will continue at a very robust level for the next five quarters, and then continue at a less robust, but still very nice level of increase, for many years thereafter.

However, with so many people presently underemployed or out of the labor force completely, even with this economic initiative, I don’t see the unemployment rate going down right away. But keep your eye out starting in say March 2011….you should see the unemployment and underemployment rates start dropping significantly by then and continue to decline for many years thereafter.

I think you’ll see this economic initiative quickly pass the US Congress. Businesses should love this three-pronged economic initiative. They will put a lot of pressure on the Republicans in the US Congress to quickly pass this measure. Corporations haven’t been able to record the increased earnings from the R&D tax credit in the first half of 2010. They would really like to get the reported GAAP earnings increase from this but it has to pass first. In addition, businesses of all sizes would love to get the income tax benefit of the 100% plant and equipment writeoff before this year end in order to shelter some of their current year profits.

The only thing that will stop this freight train from passing are the Republicans in the US Senate, bent on having the President fail, even if US citizens suffer severely in the process.

Since this economic initiative is so critically important to the country, I wish there could be some way for temporary changes to be made to the Senate Finance Committee process to make it much more effective. First, I would consider killing the Senate Finance Committee Chairmanship by seniority process. Instead, I would like to see the very brightest and most effective Senate Finance Committee members on both side of the aisle take over temporary chairmanships…in my opinion, from very close observation, either Idaho’s Crapo or Maine’s Snowe on the Republican side, and either Washington’s Cantwell or Oregon’s Wyden on the Democratic side. And then I would consider temporarily adding to the Senate Finance Committee a couple of the very brightest US Senators, who in my opinion are Indiana’s Lugar on the Republican side and Wisconsin’s Feingold on the Democratic side. These two former Rhodes Scholars both have incredibly brilliant minds and could really help get this critical economic initiative done well and in quick order. And then I’d consider adding a couple of US Senators temporarily to the Senate Finance Committee who are flat out fiscal experts, like Indiana’s Bayh.

On another point, I think one of the most important aspects of this three-pronged economic initiative is the establishment of a federal government infrastructure bank, which will facilitate both the quality of selection, and the speed of the start and completion of, infrastructure projects. And frankly, I think this federal government infrastructure bank could eventually also be wisely used to facilitate the reduction of the massive number and amounts of underwater homeowner mortgages that are out there. Further, to think outside the box, I’d even consider having this federal government infrastructure bank make some prudent direct loans to small and medium-sized businesses that were unsuccessful in getting their plant and equipment investments, spurred by this economic initiative, financed by private sector financial institutions.

The whole country should be proud of what the Obama economic team has designed here. It’s a winner and by far the best economic initiative that has been designed by the US government in the past decade. And the bang for the buck is great because it is so very well targeted at the critical economic issues.

Big US Corps Have Rocked in 2010 While the Rest of the US Got Rolled

The US economy has weakened further in 2010, with 2Q US real GDP growth of only 1.6%, with very high unemployment and underemployment, with the housing crisis getting even worse, and with the substantial US government debt increasing even more markedly.

So what has been going on with the Big US Corps in 2010? Well, the Dow and the S&P 500 index have both exploded upwardly since their lows in the first half of 2009. As any stock market guru will tell you, stock prices are driven by earnings, both past earnings and expected future earnings. Let me take a closer look at these very recent past earnings of Big US Corps.

Well, the 30 Dow Industrials in total generated core Worldwide Pretax Income of $206 bil for the first half of 2010, an increase of 40% from the $147 bil earned in the first half of 2009. Productivity Cost Savings were the principal driver of these massive earnings increases, as Total Worldwide Revenues of these Dow Industrials for the first half of 2010 increased by a much lower 11%.

As you can see below, more than half of these Dow 30 Industrials generated core Pretax Profits in the first half of 2010 that were more than $1 bil higher than that experienced in the first half of 2009, with Big Oil leading the list:

………………………....First…….First
………………………....Half……..Half
………………………....2010……2009…Increase..Increase
…………………..........Profit…..Profit…Amount…….%
…………………………...(in billions of dollars)

1 Chevron…………....16.4……..6.5………9.9…....152%
2 Exxon Mobil………24.8……15.4………9.4……...61%
3 Intel…………………..7.6……..0.6………7.0…...1218%
4 Pfizer………………..14.3……..9.7………4.6……...46%
5 JP Morgan Chase..11.6……..7.1………4.5……...63%
6 Merck………………...7.0……..3.7………3.3……...87%
7 Microsoft…………..11.4……..8.2………3.2……...39%
8 DuPont……………....3.2……..1.2……….2.0….....158%
9 American Express..2.8……..1.0……...1.8….....196%
10 AT&T……………....11.7……..9.9……...1.8……...18%
11 Cisco Systems…...4.8……..3.2……….1.6……...50%
12 JNJ………………....10.5…….8.9……….1.6……...18%
13 GE…………………....7.1……..5.7……….1.4……...24%
14 Alcoa………………..0.1……(1.2)………1.3……..112%
15 Caterpillar…………1.4……..0.2……….1.2……..649%
16 Disney………………3.9……..2.7……….1.2……....46%
17 3M…………………..3.0……..1.9………..1.1……....55%

All 30 Dow Cos....206.1….146.9……...59.2……..40%

And when I expand my research here to also include 132 of the largest non-Dow Industrial companies, I get very similar strong earnings and Productivity Cost Savings results. For these 132 large non-Dow companies, core Worldwide Pretax Income for the first half of 2010 was $228 bil, up 47%, whereas Worldwide Revenues were up a much lower 15%.

There were 22 of these 132 non-Dow Industrial companies generating core Pretax Profits in the first half of 2010 that were more than $1 bil higher than that experienced in the first half of 2009, with 6 Big Oil companies among the top 15 of these 22:

………………………….......First…….First
………………………….......Half……..Half
………………………….......2010……2009….Increase..Increase.
…………………................Profit…..Profit…Amount……..%
………………………...........(in billions of dollars)

1 Berkshire Hathaway….8.0……..2.2……….5.8……...257%
2 Morgan Stanley………..4.2…….(1.2)……….5.4…......445%
3 Ford…………………........5.0…….0.6………..4.4…......760%
4 ConocoPhillips………...7.3……..3.9………..3.4…….....86%
5 Apple…………….…........8.3……..5.1………..3.2…….....64%
6 Prudential Financial….2.5……..0.0……….2.5……....
7 Andarko Petroleum…..1.3…….(0.9)………2.2……...241%
8 Dow Chemical……........1.4…….(0.7)………2.1….......311%
9 Capital One Financial...2.1……..0.2…….....1.9….....1092%
10 Occidental Petroleum3.6….....1.7………..1.9……...113%
11 FedEx………………........1.1…….(0.7)………1.8……...247%
12 Texas Instruments......2.1……..0.4……….1.7……...456%
13 Devon Energy……….....2.2……..0.5……….1.7……...304%
14 Apache…………….........2.6……..1.2………..1.4……...126%
15 Hess………………..........1.7……...0.3……….1.4……....500%
16 Corning……………........1.9……..0.6………..1.3……....235%
17 Freeport McMoran…..3.2……..1.9………..1.3…….....68%
18 Google…………….........4.9……..3.7………..1.2…….....32%
19 PNC Financial……......2.0……..0.9………..1.1……....128%
20 Qualcomm………........1.9……..0.9………..1.0……....119%
21 Applied Materials…...0.6…….(0.4)……….1.0……....224%
22 Johnson Controls……0.8…….(0.2)……….1.0……....572%

All 132 non-Dow Cos.228.4…...155.0……...73.4………47%

I think that primarily six subgroups of Big Corps have played major roles in creating the 2000s Lost Decade, the financial aftershocks of which are the main reason for the country’s present horrible jobless recovery, with sky high unemployment and underemployment, very modest real GDP growth, high US government debt level, and the awful housing crisis.

The six are:

…Big Multinational Corps
…Big Oil Corps
…Big Financial Corps
…Big Health Insurance Corps
…Big Pharma Corps
…Big Hospital, both For-Profit Corps and Non-Profits

Let me isolate how each of these six subgroups of Big Corps have done in the first half of 2010 by further analyzing the operating performance of the 162 large companies (30 Dow Industrials and 132 non-Dow companies) I have studied above, as well as adding a few other health care industry companies.

Big Multinational Corps

A large portion of the 162 companies are big multinational corps. In the aggregate, the core Pretax Earnings in the first half of 2010 of these 162 corps totaled $434.5 bil, up an incredibly high 44% from the $301.9 bil earned in the first half of 2009.

A surprising finding here for me is that this $434.5 bil of total core Pretax Earnings in the first half of 2010 were just barely short of the all-time peak total first half earnings of these same 162 companies experienced in the first half of 2008 of $436.3 bil. And these first half 2010 earnings of $434.5 bil slightly surpassed the $433.2 bil of comparable earnings experienced in the first half 2007. I have to wonder what percentage of US individuals and purely domestic US businesses, both large and small, were doing just as well financially in the first half of 2010 and they were doing in the first half of 2008 and 2007? My hunch is less than 10%. Clearly, all boats haven't risen, it's just been the Big Corp Boats.

Clearly, the earnings of the Big Multinational Corps have bounced back in 2010. And since Total Revenues in the first half of 2010 of these 162 companies are up only 13%, whereas Total Earnings increased by a much more robust 44%, Productivity Cost Savings have played a major role, not just the layoffs of US employees and the wage and employee benefit trade-down replacements of US employees, but also the movement of jobs overseas, due to lower income taxes, lower wages, and lower employee benefit costs. And the very robust earnings and revenue growth here are mostly overseas.

Big Oil Corps

There were 15 Big Oil Corps included in these 162 large corps. The total core Pretax Earnings of these 15 Oil companies for the first half of 2010 were $68.7 bil, up a massive 86% from the comparable earnings in the first half of 2009. And these nosebleed increased earnings occurred in a period marred in part by the Gulf Oil spill. With its awesome economic power and government influence, it seems that nothing can stop this Big Oil industry from generating windfall profits.

Big Financial Corps

There were 25 Big Financial Corps included in these 162 large corps. The total Pretax Earnings of these 25 Financial companies in the first half of 2010 were $70.3 bil, up a surprisingly very strong 44% from the comparable earnings in the first half of 2009. The only ones suffering in the Big Financials arena are its homeowner mortgage customers, its credit card customers, its small business customers, and US taxpayers from the US government bailouts of Fannie Mae, Freddie Mac and AIG.

Big Health Insurance Corps

The Big 4 of Health Insurance are United Health Group, Wellpoint, Aetna and Humana. The total pretax earnings of these 4 companies in the first half of 2010 were $8.7 bil, up a strong 29% from the first half of 2009. The total earnings of these four stalwarts of the Health Insurance industry has now significantly surpassed its previous peak earnings experienced in the first half of 2007 of $7.8 bil. The only ones suffering in the health insurance industry are the customers of health insurance, both businesses and individuals, paying sky high premiums in an industry continuing to generate windfall profits. And once the new health care legislation totally kicks in, the health insurance industry will do even substantially better. Just like Big Oil, it seems that nothing can stop this health insurance industry.

Big Pharma Corps

The total core Pretax Earnings for these 12 Big Pharma Corps, included in these above 162 Big Corps, for the first half of 2010 were $48.9 bil, precisely matching the 29% earnings growth over the first half 2009 also experienced by the Big Health Insurance industry. The total core earnings of the Big Pharma industry has now significantly surpassed by 23% its previous peak earnings in the first half of 2008 of $39.6 bil. The only ones suffering in this Big Pharma industry are the customers of Big Pharma, including individuals and the US Government. And once the new health care legislation totally kicks in, just like the Big Health Insurance industry, Big Pharma will also do even substantially better. And just like Big Oil and Big Health Insurance, it seems that nothing can stop this Big Pharma industry. For all three industries, it’s all about effective lobbying.

Big Hospital

There are six large for-profit hospital organizations which file with the SEC:
…HCA
…Community Health Systems
…Universal Health Services
…Tenet Healthcare
…Health Management Associates
…Lifepoint Hospitals

This publicly-held Big Hospital industry has had back-to-back superb years. In the first half of 2010, the total Pretax Earnings of this publicly-held Big Hospital industry were $2.1 bil, up 9% from the first half of 2009, which had an increase of a massive 74% over the first half earnings of 2008. The only ones suffering in the total Big Hospital industry, which also includes the many Non-profit Big Hospital organizations, are the hospital patients and the US Government. And once the new health care legislation totally kicks in, just like the Big Health Insurance and the Big Pharma industries, Big Hospital will also do even substantially better. Just like Big Oil, Big Health Insurance, and Big Pharma, it seems that nothing can stop this Big Hospital industry. For all four industries, it’s all about effective lobbying.

=============================================

In summing up, it’s just not right for all of these six subgroups of Big Corps to be rocking in the first half of 2010 when both so many US citizens and so many US small businesses are in such desperate straits financially. It’s all about Big Corps obscene power through effectively lobbying the US Congress.

In the 2000s Lost Decade, US Big Corps have gotten way too strong relative to the US Government. I think it’s high time to reverse this very damaging trend.

I think the US Government should take steps to spread some of the massive economic benefits received by Big Corps to the entire US citizenry and to US small businesses.

First, I think it is only fair that many in the long list of tax loopholes of each of these six Big Corp subgroups be closed, and the funds raised here to be used to finance desperately needed private sector job creation.

Second, something has to be done about the damaging effect of lobbying. As one step, I would put a very stiff, highly progressive gross receipts tax on lobbying revenue, and use the funds raised here to also finance private sector job creation.

And third, I think the US Government should act to reduce the size of the largest of the US Big Corps, which have done so much damage to both the US economy and to so many US citizens. I think that when a company gets to the stage of having a massive profit, it spends way too much time in profit improvement initiatives like creative tax loophole strategies, productivity cost reduction, and business acquisitions, with this time being taken away from the highly desirable initiatives to organically grow their business. Further, when a company gets so large, it spends an inordinate amount of time lobbying the US Congress.

To approach this problem objectively, here are the top 10 of the 30 Dow Industrials in total core Pretax Earnings for the first half of the most recent five years (first half 2006-2010):

...1 Exxon Mobil............$150 bil
...2 Chevron..................$ 77 bil
...3 Bank of America......$ 55 bil
...4 Pfizer......................$ 54 bil
...5 Microsoft................$ 50 bil
...6 Walmart..................$ 49 bil
...7 GE...........................$ 49 bil
...8 AT&T.......................$ 47 bil
...9 JP Morgan Chase.....$ 47 bil
..10 JNJ.........................$ 44 bil

In total, these top ten comprise an amazingly high 63% of the total earnings of all 30 Dow Industrial companies for the same period. And there is a substantial drop in earnings after the top ten of the Dow 30, with #11 Verizon generating comparable profit of $35 bil.

In reviewing comparable profits of the large non-Dow companies, there is only one company which would make it into the Dow top ten in core Pretax Earnings....ConocoPhillips, which registered total core Pretax Earnings for the comparable period of $57 bil. After ConocoPhillips, there is a huge drop down in total profits of the largest non-Dow companies for the first half of the past five years...to #2 Wells Fargo at $37 bil.

To show the economic dominance of Big Oil, ConocoPhillips would be #3 in the above Dow 30 in profits. Thus, the top three US profit generators in the first half of the past five years (first half 2006-2010) were all Oil Companies!

I think it is helpful to compare the above top 13 profit list with what existed in the late 1990s Go-Go years of the US economy. Here are the rankings in after-tax total profit of US companies for the five years from 1995 to 1999, with the information taken from Fortune Magazine profit rankings.

... 1 GE.......................$42 bil
... 2 Exxon Mobil........$37 bil
... 3 Altria Group........$31 bil
... 4 IBM.....................$30 bil
... 5 Intel....................$29 bil
... 6 Ford....................$29 bil*
... 7 General Motors....$28 bil
... 8 Merck..................$23 bil
... 9 Citigroup..............$23 bil
...10 DuPont...............$22 bil
...11 Bank of America..$21 bil
...12 AT&T..................$21 bil
...13 Microsoft............$19 bil

* Excluding $16 bil gain from spinning off The Associates

In comparing the two lists, here are some key conclusions:

*****There was only one Big Oil company in the late 1990s decade (Exxon Mobil at #2) vs. three now, and with all three at the very top of the list. I think having so much Big Oil dominance now is extremely destructive to the US economy. Big Oil tax loopholes should be closed and Big Oil needs to be broken up.

*****There were three high tech companies in the late 1990s (#4 IBM, #5 Intel, and #13 Microsoft) and now only one (#5 Microsoft). To be a worldwide economic powerhouse, I think the US needs to have an even much more robust high tech industry. I think it would be wise to give highly-charged US tax incentives (investment tax credits, jobs tax credits, R&D tax credits) to this critical industry. And the US jobs created here are quality higher paying jobs.

*****There were six manufacturers in the late 1990s (#1 GE, #4 IBM, #5 Intel, #6 Ford, #7 General Motors, and #10 DuPont) and even a couple more that do some manufacturing vs. only one now (a much lower #7 GE) and a couple others that do some manufacturing. Clearly, the US government has to prop up its entire critical manufacturing industry with highly robust wise tax incentives like the investment tax credit, jobs tax credit and R&D tax credit. A very robust, world-class US manufacturing sector, with a particular focus on green energy, is needed for the US to be an economic powerhouse on the world scene.

*****The late 1990s list has total profits much closer together than that in the current list. It is not good for the US economy to have one company dominate a sector like Walmart, Microsoft and Exxon Mobil do. For competitive reasons, it is much better for the US economy to have profitability of the top companies to be much closer together than they are now. I wouldn't give any tax incentives to the dominant companies in an industry. Instead, I would give the tax incentives to all the other companies in a critical industry, with particular emphasis on the smaller companies and on domestic companies of all sizes.

Anyway, to substantially increase competition, I think the entire country would benefit dramatically if all of the above 11 giant pseudo-monopoly US Corps on the current top profit list (i.e. Dow top ten plus ConocoPhillips) were broken up into parts. And then due to their just incredible dominance, I would consider breaking up Exxon Mobil into five parts and Chevron into three parts. I would consider breaking up the remaining 9 companies into two parts each.

In addition, to significantly increase competition, I would also break up some of the Big Health Insurance industry. Because of their size and pseudo-monopoly status in setting prices, I would consider breaking up United Health Group into three parts and Wellpoint into two parts.

When you think about it, the only option US citizens have of turning around the financial devastation caused by Big Corp lobbyists is to vote smartly. I encourage everyone to very thoroughly research all of the candidates running in the November 2010 elections. And for the candidates who have supported Big Multinational Corps, Big Oil, Big Financial, Big Health Insurance, Big Pharma and/or Big Hospital, we should make sure that these candidates do not get elected or re-elected.