This post updates my earlier post on Missouri Big Corps and State Corporate Income Taxes Paid.
In performing a quick review of SEC filings of large corps with an SEC State Location Code in Missouri, I found 8 large corps with Total Consolidated Core Pretax Income of more than $5 bil each, for the most recent 12 years. My definition of Core Pretax Income excludes large Asset Impairment Charges and large Acquired In Process R&D Charges.
Below here is the effective state and local corporate income tax rates paid, which are computed by dividing the current state and local corporate income tax paid by the consolidated core pretax income, both in total for the past twelve years for each of these 8 large Missouri Corps. These 8 large Missouri Corps below had a weighted average state and local corporate effective income tax rate paid of 3.26%, which is a 48% discount to Missouri’s current statutory corporate income tax rate of 6.25%.
….……………………..................Current……Core………......State
….……………………....................State...Consolidated..Effective
….……………………....................Tax……….Pretax………Tax Rate
….……………………....................Paid……..Income……….Paid
….……………….…....................(Millions of Dollars)
Emerson Electric...............................443.......27,558.......1.61%
Anheuser-Busch(1998-2007).........1,288.......23,436.......5.50%
Monsanto..........................................142.......12,889.......1.10%
Ameren.............................................349*......9,872.......3.54%
H&R Block.........................................406........8,169.......4.97%
May Dept Stores(1998-2004)............375........7,726.......4.85%
Express Scripts..................................133........6,553.......2.03%
DST Systems......................................167........5,225.......3.20%
MO Total for all 8 Corps...............3,303....101,428.......3.26%
* Current State Tax for 2004-09 and both Current and Deferred State Tax for 1998-2003
For the most recent year, the weighted effective state and local corporate income tax rate paid by these large Missouri Corps was a much lower 1.26%. One reason for this lower effective tax rate is that Anheuser-Busch was excluded in 2009, since it was acquired earlier.
And below here are the 6 Medium-sized Missouri Corps, with Pretax Core Income for the most recent 6 years of more than $2 bil, but with Pretax Income for the past 12 years of less than $5 bil, and thus not included in the earlier shown 8 Big Missouri Corps.
........................................Most Recent Six Years
.......................................State&Local....(PTI).........Effective
.......................................Corporate........Core......State&Local
..........State.......................Income.........Pretax......Tax Rate
.......Corporations.............Tax Paid.......Income........Paid
...........................................(Millions of Dollars)
Peabody Energy.......................2............3,302..........0.06%
Energizer Holdings.................36............2,641..........1.36%
MEMC Electronic Materials......5............2,638..........0.19%
Reinsurance Group of America.0............2,523..........0.00%
Sigma Aldrich.........................39............2,452..........1.59%
Amdocs, Ltd*………...................0……......2,312..........0.00%
MO Total for all 6.................82...........15,868.........0.52%
* Amdocs, Ltd is an Islands of Guernsey Corp, has SEC listed Principal Executive Offices in Chesterfield, MO, and a New York City external CPA firm
I think it makes much more sense to balance a State’s severely stressed budget by closing some of the huge Big Corp State Corporate Income Tax Loopholes, rather than by drastically reducing critical state services like education and citizen protection. And particularly in Missouri’s case, I think a wisely targeted, very healthy refundable investment tax credit would be very helpful to prop up the very troubled manufacturing sector.
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 troubled manufacturers, like many of those in Missouri.
The reason the refundable investment tax credit option is needed is that businesses that are in federal tax loss situations cannot get the economic benefit of the 100% first-year tax expensing.
Just like in so many states in the country, Missouri companies, as well as its residents, have been hurt severely by high energy costs. It think the Obama Administration’s Energy Tax Credit Proposal for all businesses that make Green Energy Commercial Building Upgrades is one that would really help Missouri.
And then to pay for this wise Energy Tax Credit, closing US Big Oil tax loopholes make all the sense in the world. US Big Oil and Gas companies, 35 in total, 25 of which are located in Texas, have seen their pretax core earnings increase by an incredible 712% in the past decade. And the US government rewards them for these windfall profits by granting them many lucrative tax incentives for doing just that….LIFO Inventory, Percentage Depletion, Domestic Production Tax Deduction, and many others. Incredible!
And US Big Oil companies are able to unreasonably shift income overseas, thereby reducing the US federal income taxes they pay. This needs to be fixed. The percentage of their worldwide profit that is included is their US income is substantially lower than the percentage of their worldwide sales that are made in the US. That makes no economic sense to me….there is no way such an enormous gap should be permitted.
There has been a massive income shift (transfer of wealth) in the past decade between Non-Big Oil and Gas Companies to Big Oil and Gas Companies. It has just devastated the US economy.
And that past decade 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 steeply in the past two years, helped immensely by wise Obama Administration economic policies, very beneficial to Big Corps. And I think you are going to see the stock market move up even more dramatically through the end of the Obama Administration’s second term. By the end of President Obama’s second term, it wouldn’t surprise me if there will be some very successful business CEO’s pushing to change the law, and letting President Obama run for a third Presidential term. That’s how happy they will be, and also how smart they are.
But the economic problem confronting us now is that all boats haven't risen, only the Big Corp boats, and particularly the Big Oil Corp Yachts.
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, disillutioned 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.
Clearly, it would be wise for the US government to take action that would reverse this horrible income shift trend, which has severely damaged not just more than 95% of US businesses, but has also devastated US individuals, and all of federal, state and local governments. Not only has it resulted in much higher US unemployment, much higher US underemployment, and lower median US wages, but it also has resulted in a substantially higher portion of a family's take-home pay being used to pay for energy costs than that of a decade ago.
When energy costs are so high, and also increasing so much, as well as being so volatile, it is very difficult for someone to start a business. The risk/reward of taking a chance and starting a new business in this sky-high energy cost environment is dramatically tilted toward the risk side right now, whereas over a decade ago, it was clearly tilted toward the reward side. I think the US government should institute economic initiatives to make the risk/reward of starting a new business a lot more attractive…..that’s where the jobs will come from…..and the key are initiatives to reduce the after-tax energy cost of starting a new business, or of expanding an existing business.
As a first step, I think it only makes sense for the US government to eliminate the many massive tax loopholes that are granted to Big Oil and Gas Corps to reward them for generating these windfall profits. And the money raised here should be given as wise, lucrative tax incentives to all US businesses that effectively reduce their energy costs.
Such a tax plan, is a ten-fer:
.....higher US real GDP growth
.....lower US unemployment
.....lower US underemployment
.....higher US median wages
.....lower portion of take-home pay needed to fund energy costs
.....higher after-tax corporate profits for more than 95% of US businesses
.....significant reduction in the US deficit
.....better State government coffers
.....more competitive US firms
.....and a huge step toward US becoming energy independent
