This post updates my previous post on Michigan Big Corps. It changes the Pretax Income numbers to Core Pretax Income numbers, which exclude large Asset Impairments.
In performing a quick review of SEC filings of large corps with an SEC State Location Code in Michigan, I found 7 corps with healthy State Corporate Income Tax Loopholes Taken, at least the way I measure them, in the last dozen years.
General Motors was excluded from this below list because of its huge pretax losses, which totaled $58.5 bil for the four years from 2005 to 2008. GMAC was also excluded, even though it registered total pretax profits of $24.8 bil in the years from 1998 to 2005, when it was 100% owned by GM. However, all of these GMAC profits were already included in GM’s total earnings. Since GM sold 51% of GMAC in November 2006, GMAC has generated pretty hefty aggregate losses.
Ford was included in the below list, even though it generated $33.4 bil of pretax losses in the three years from 2006 to 2008. Ford more than made up for those losses, when in the three years from 1998 to 2000 (ahh, those Clinton Economic years), Ford registered pretax profits totaling $42.4 bil. In those same three Clinton years, even General Motors generated pretax profits, which totaled $21.1 bil.
The many publicly-held auto suppliers in Michigan were also excluded from the list. Nearly all of them generated substantial losses. More on that later.
Below here is the effective state corporate income tax rates paid, which are computed by dividing the current state corporate income tax paid by the consolidated core pretax income, both in total for the past twelve years for each of these Big Michigan Corps. These 7 Big Michigan Corps below had a weighted average state corporate effective income tax rate paid of a very modest 1.65%. This is substantially below Michigan’s current state corporate income tax rate that starts at 4.95% of income, but then added to this 4.95% tax rate is the lesser of $6 mil or of another 22% of 4.95% of income, or an additional 1.09%.
….……………………...............Current……Core……..........State
….…………………….................State.....Consolidated....Effective
….…………………….................Tax………...Pretax………..Tax Rate
….…………………….................Paid……....Income………...Paid
….……………….…...................(Millions of Dollars)
..7. Masco...........................366…….....11,125*….......3.29%
..6. Stryker….......................265............9,333.…........2.84%
..5. Kellogg……………….........338…….....14,419…….......2.34%
..4. Whirlpool……................116.............6,071….........1.91%
..3. Dow Chemical...............422…….....28,200…….......1.50%
..2. Ford…...........................210……....30,242*..........0.69%
..1. DTE Energy.....................35**........7,089…….......0.49%
Total all 7………...............1,752….......106,479…….......1.65%
* Excludes large Asset Impairments
** Current State Income Tax for the most recent three years; there was no State Income Tax disclosure in the earlier years, therefore I assumed none were paid.
I think it makes much more sense to balance a State’s budget by closing some of the Big Corp State Corporate Income Tax Loopholes, rather than by either significantly reducing critical state services like education and citizen protection, or by cutting unemployment benefits or Medicaid benefits.
But also, I think it makes sense to use some of the funds from the closing of these Michigan Big Corp State Income Tax Loopholes to provide some wise, highly stimulative, job-creating tax incentives to small and medium-sized businesses, and particularly ones targeted at the severely depressed auto supplier industry.
After reviewing tons of the SEC filings of Michigan auto suppliers, with substantial losses after losses, years on end, it is pretty clear to me why there was such widespread dissatisfaction with both the Federal and State Governments, as shown in the recent November 2010 election.
What the Obama Administration did to prop up General Motors was absolutely necessary, or else the country’s unemployment rates would have increased substantially, and particularly so in states with a heavy automobile and automobile supplier industry like Michigan. And for many US citizens to now be so visibly upset that the recent General Motors IPO was successful is frankly unpatriotic. The country ended up making money on the General Motors bailout and there are many citizens who are intensely mad about that. Incredible!
But the problem in the US auto industry is much too severe to be solved by a somewhat rejuvenated General Motors, which was revived from the ashes. What I think is needed are substantial smartly-designed business tax incentives to help rescue all of these auto suppliers, who are now on life support. Their losses have just been so substantial, and for so many years, while the Government just ignored this massive problem.
I would prefer seeing something like the investment tax credit, but with a bonus percentage in very hard hit areas of the country like Detroit, and some other parts of Michigan. And other places hit hard by offshoring of manufacturing jobs should also get the benefit of a bonus investment tax credit.
For maximum positive effect to the US economy and to US job creation, I think the US government should let businesses have a choice on the capital expenditures they make.....they could either take 100% first year expensing, or they could instead choose a refundable investment tax credit, with a bonus percentage for capital expenditures made by the very troubled Rust Belt manufacturers, like those in Michigan. I wouldn't give the bonus investment tax credit percentage to huge companies. Something totally missed by many people is that 100% expensing of equipment doesn’t help the many companies that are in huge tax loss positions. These companies can’t get the tax benefit from 100% expensing.
A healthy business research tax credit program is also needed for Michigan. There are all of these very bright, innovative people connected with the second best public research university in the world, the University of Michigan….second only to Cal-Berkeley…..and somehow this Wolverine think tank should be better utilized to foster Michigan’s economic recovery. There should be some strong government incentives to make this happen.
And until this happens, I can’t understand why elected members of the US House and the US Senate are being so mean-spirited with some of these many unemployed by wanting to cut off their unemployment compensation benefits. It’s not the fault of the Michigan unemployed that the US auto industry went down the tubes. It’s really the fault of many in the laissez-faire US government who ignored this problem for so many years. And at the same time, these same US politicians were fostering the offshoring of Michigan manufacturing jobs, which added substantial amounts of kindling to this ravishing fire.
And the hypocrisy of voting down unemployment benefits under the pretense of Deficit Reduction! Just looking at a couple of the Dow Industrials, these same US politicians strongly support measures that permitted:
…..Exxon Mobil to pay no federal income taxes in 2009, instead letting them get a federal income tax refund of more than $800 mil, when in the same year, Exxon Mobil earned consolidated pretax income of more than $35 bil.
….. Verizon Communications to pay no federal income taxes in 2009, instead letting them get a federal income tax refund of more than $600 mil, when in the same year, Verizon earned pretax income of more than $11 bil.
….. Merck to pay no federal income taxes in 2009, when in the same year, it earned consolidated pretax income of more than $15 bil.
…..GE to pay no federal income taxes in 2009, instead letting them get a federal income tax refund of more than $800 mil, when in the same year, GE earned consolidated pretax income of more than $10 bil.
…..GE to pay no federal income taxes in 2008, instead letting them get a federal income tax refund of more than $700 mil, when in the same year, GE earned consolidated pretax income of more than $19 bil.
…..GE to pay no federal income taxes in total for the four years 2006 through 2009, instead letting them get a federal income tax refund of more than $1.5 bil, when in those same four years, GE earned consolidated pretax income of more than $82 bil.
And further, these same US politicians protect the so many, huge Big Corp federal and state corporate income tax loopholes. By closing many of these tax loopholes, both the US and State Budgets would be substantially strengthened.
Also, these same US politicians, and even including some Democrats, passed all of these annual Tax Extenders, clearly being lobbied by special interest groups to do so. And what is their proposal to pay for this massive cost? Well, it is not paid for, instead it increases the US Deficit.
US Big Oil has devastated the Auto Industry. Probably more than anything, the reason the US has such a devastating, never-ending jobless recovery, is due to the massive transfer of wealth in the past decade from all non-Oil and Gas businesses, from all US individuals, and from federal, state and local governments to the financial coffers of US Big Oil Corps, whose core pretax earnings in the past decade have increased by a monstrous 712%. This is wrong and people should be outraged.
And that 712% earnings increase for US Big Oil, 35 companies in all, with 25 of them located in Texas, is for the two-year period 2008 and 2009 over the two-year period 1998 and 1999. So what's happened in 2010? It's gotten worse. Let me explain.
Of the 30 Dow Stocks, 23 have December year ends. Of those 23, only 3 (Coke, Merck and Kraft) haven't released their December 2010 earnings yet. Here's the annual Pretax Earnings of the 20 that did already release their December 2010 earnings.
.......................................Pretax Income
......................................2010.......2009....% Change
...................................(millions of dollars)
Big Oil
Exxon Mobil.................52,959.....34,777....+52%
Chevron........................32,055....18,528.....+73%
Total 2 Big Oil................85,014.....53,505.....+59%
Non-Big Oil
JPMorganChase...........24,859.....16,067......+55%
IBM..............................19,723.....18,138.........+9%
AT&T............................18,238.....18,518..........-2%
JNJ...............................16,947.....15,755........+8%
Intel.............................16,369......5,704......+187%
GE................................14,208......9,995........+42%
Verizon........................12,684.....13,520..........-6%
Bank of America...........11,077*.....4,360.....+154%
Pfizer.............................9,422.....10,827.........-13%
McDonalds....................7,000......6,487..........+8%
United Technologies......6,538......5,760........+14%
American Express..........5,964......2,841......+110%
3M.................................5,755......4,632.......+24%
Boeing...........................4,507......1,731......+160%
Travelers.......................4,306......4,711...........-9%
Caterpillar.....................3,750........569.......+559%
Dupont..........................3,711......2,184........+70%
Alcoa...............................548.....(1,498)......+137%
Total 18 Non-Big Oil..185,606...140,301.......+32%
* Excludes $12.4 bil Goodwill Impairment Charge
Well, when you look at the above numbers, you have to be impressed with the substantial overall earnings growth in 2010. And earnings drive stock prices, thus it's easy to see why the Dow Stock Index is up so much, helped immensely by wise Obama Administration economic policies, very beneficial to Big Corps. But the problem is that all boats haven't risen, only the Big Corp boats.
But more to the point, look how Big Oil dominates the Dow Industrial companies.....it was nothing like that a decade earlier. The average 2010 Pretax Earnings of the two Big Oil Dow companies (Exxon Mobil and Chevron) is $42.5 bil, which is 4.1 times the $10.3 bil average 2010 earnings of the above 18 Non-Big Oil Dow companies.
And then look at the earnings increase trend. The 18 Non-Big Oil Dow companies exerienced a very impressive 32% earnings growth in 2010. But that was nothing compared to the 59% earnings growth of the 2 Big Oil Dow companies.
OK, so Exxon Mobil and Chevron tower over the rest of the Dow here. Surely that's it for Big Oil? Well, it's not. ConocoPhillips, the next in the US Big Oil pecking order, generated Pretax Earnings in 2010 of $19,750 mil, which is higher than 17 of the 18 non-Big Oil companies shown here. And how did ConocoPhillips do with its earnings growth? Well, its earnings grew by 106% in 2010. And so many other Big Oil related companies also had incredibly stellar earnings amounts and increases in 2010.
Unless Big Oil’s devastation to the US economy gets fixed, it wouldn’t surprise me that you will start seeing financially desperate people massively picketing US Big Oil Corporate Offices, as well as the offices of the US Congress members, who are unabashed supporters of US Big Oil. And there are so many extremely bright, disillusioned college graduates of the past three years or so.....I think you'll see that they will eventually rise up against Big Oil, as will many college students, keenly aware that their friends graduating from college have not been able to get decent jobs.
