This post updates my previous post on Ohio Big Corps.
In performing a quick review of SEC filings of large corps with an SEC State Location Code in Ohio, I found 21 large corps with Total Consolidated Core Pretax Income of more than $4 bil, for the most recent 12 years. My definition of Pretax Core Income excludes large Asset Impairment Charges, particularly those related to Goodwill Impairments.
Below here is the effective state 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 21 large Ohio Corps. These 21 large Ohio Corps below had a weighted average state and local corporate effective income tax rate paid of a modest 2.27%.
….……………………..................Current…………………......State
….……………………....................State...Consolidated..Effective
….……………………....................Tax……….Pretax………Tax Rate
….……………………....................Paid……..Income……….Paid
….……………….…....................(Millions of Dollars)
21. First Energy………………....1,047……...16,613………..6.30%
20. Macy’s…………………….........730……....12,318*………5.93%
19. Abercrombie & Fitch...........238….......4,610………..5.16%
18. Limited Brands….................564……...12,203………..4.62%
17. Sherwin Williams.................275….......6,837………..4.02%
16. Cintas…………………..............172…........4,850………...3.55%
15. Kroger…………......................641…......18,518*...…….3.46%
14. Cardinal Health...................488……...17,663……......2.76%
13. Keycorp…….........................335….....12,650*….......2.65%
12. Duke Energy Ohio/Cinergy..147..........5,997*..........2.45%
11. National City Corp…............497……..24,178……......2.06%
10. Parker Hannifin……………......161….......8,143……......1.98%
..9. American Electric Power.....276……..17,237…….....1.60%
..8. Fifth Third Bancorp……….....244……..16,432*..……...1.48%
..7. Procter&Gamble...............1,765…..120,702……......1.46%
..6. Owens Illinois Group..............69.........5,002*..........1.38%
..5. Eaton.....................................82……….8,539……......0.96%
..4. American Financial Group.....19……….4,635……......0.41%
..1. Nationwide Financial Svcs…....0……….4,805……......0.00%
..1. Cincinnati Financial................0**......6,984............0.00%
..1. The Progressive Corp..............0……...11,934……......0.00%
Total all 21………....................7,750…....340,850…….....2.27%
* Exclusive of large Asset Impairment Charges
** No mention of State Income Taxes, therefore assumed none were paid.
For the most recent year, the weighted state corporate effective income tax rate paid by these 21 large Ohio Corps was an even lower 1.45%.
There is a massive divergence between the state and local corporate income tax rates paid by Ohio’s retailers and that paid by its financial companies. Ohio retailers have paid much higher state and local corporate income tax rates, as you can see by three Ohio retailers being in the top four in the above list. On the other hand, four financial companies are at the very bottom of the above list.
And there are so few manufacturers on the above list. The severe recession has really devastated Ohio’s manufacturing sector, just like it has hurt manufacturers all throughout the country’s Rust Belt….particularly in Pennsylvania, Michigan, Wisconsin, Illinois amd Indiana.
Only six of the 50 US States now don't have state corporate income taxes. Ohio is one of the six, since it switched from a Franchise Tax to now some version of a Gross Receipts Tax, which it phased-in starting in 2005. However, many Ohio Big Corps still pay Corporate State Income Taxes to other states. These 44 US States plus Washington DC, which have state corporate income taxes, have an average Corporate State Income Tax Rate of 7.44%, which is close to the related median tax rate of 7.30%.
It seems to me that Ohio’s switch from an income-based Franchise Tax to a Gross Receipts Tax has substantially benefited the giant, powerful Procter & Gamble, at the expense of nearly all other Ohio’s manufacturers. Procter & Gamble’s net margin percentage (i.e. Pretax Income divided by Net Sales) just towers over all other Ohio manufacturers, as you can see from the following table.
……………………………………………..........Most Recent Two Years…...
……………………………………………………...Pretax……....................Net
......Ohio Corp………………...HQs……....Income….Net Sales….Margin
…………………………………………..............(millions of dollars)
Procter&Gamble.....Cincinnati...29,460...155,632...18.9%
Ohio's Next 14 Largest Traditional Manufacturers
Owens Illinois…………....Perrysburg……1,313…….14,952……8.8%
Parker Hannifin…………..Cleveland……..1,437……20,302…...7.1%
Eaton……………………......Cleveland……..1,443…….27,249……5.3%
Timken…………………......Canton…………...346……....8,183……4.2%
Owens Corning…………...Toledo…………...199……...10,650…..1.9%
Goodyear Tire…………....Akron…………..(171)….....35,789….(0.5)%
AK Steel……………….......West Chester….(104)……..11.721….(0.9)%
Worthington Industries.Columbus……...(63)……....4,574…..(1.4)%
Polyone………………….....Avon Lake…….(116)……....4,800….(2.4)%
Cooper Tire…………….....Findlay………...(142)……....5,815….(2.4)%
Ferro……………………......Cleveland……...(100)……...3,903….(2.6)%
Nacco Industries………..Cleveland……...(392)……...5,976….(6.6)%
NewPage Holding……….Miamisburg…...(512)……....7,462….(6.9)%
Dana Holding………….....Maumee……..(1,098)….....13,323…(8.2)%
Total 14 Other Than P&G..............2,040.....174,699.....1.2%
Whereas, for the two most recent years, these above 14 largest Ohio traditional manufacturers other than Procter & Gamble had total net sales of $174,699 mil, 12% above that of Procter & Gamble, these 14 companies only had total Pretax Income of $2,040 mil, a miniscule 7% of Procter & Gamble’s Pretax Income of $29,460 mil. Thus, the huge, very powerful Procter & Gamble cleans up with the new Ohio Gross Receipts Tax vs. the previous Franchise Tax, which was based on income. And these other manufacturers get nailed with substantial Ohio Gross Receipts Tax, even though their profit is very modest. And 9 of these 14 manufacturers even had Pretax Losses for the most recent two years.
Particularly in these very troubled, jobless recovery economic times, especially for manufacturers, it seems to me that another really good argument for Ohio to have a State Corporate Income Tax, rather than a Gross Receipts Tax, is that when the giant Procter & Gamble repatriates any of its massive amounts of presently Unremitted Foreign Earnings, the State of Ohio’s financial coffers should be significantly enhanced, if the Ohio State legislature were to enact it wisely.
Here’s Procter & Gamble’s Unremitted Foreign Earnings amount at the end of its four most recent fiscal years:
June 30, 2010…..$30 bil
June 30, 2009…..$25 bil
June 30, 2008…..$21 bil
June 30, 2007…..$17 bil
Now that is what I call a huge amount of Unremitted Foreign Earnings. It’s also what I call substantial annual growth in the build up of this key Unremitted Foreign Earnings number. Just think what Procter & Gamble’s Unremitted Foreign Earnings will be down the road.
In its fiscal year ended June 30, 2006, Procter & Gamble repatriated $7.2 bil of its foreign earnings. In its annual report footnotes, there is no mention of any state income tax paid connected with this foreign earnings repatriation. My hunch is that is so because Ohio switched to a Gross Receipts Tax from its previous Income-based Franchise Tax.
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 either drastically reducing critical state services like education and citizen protection, or by significantly increasing state university tuition.
And particularly in Ohio’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 the very troubled Rust Belt manufacturers, like those in Ohio.
I think many people have missed the key point that 100% first-year tax expensing of equipment gives no economic benefit to the many manufacturers in a US federal tax loss situation.
I wouldn't give the bonus investment tax credit percentage to huge companies like Procter & Gamble. I think something has seriously gone wrong when one company like Procter & Gamble is able to generate pretax profits which are more than 14 times the total profits of the 14 next largest manufacturers in Ohio.
Here’s an updated list of the 17 Ohio Big Corps with Total Core Pretax Income of more than $5 bil for the most recent 12 years. This list is sorted by Pretax Income.
….…………………….....................Current……...Core…......State&Loc
….……………………...................State&Loc.Consolidated..Effective
….…………………….......................Tax………...Pretax……..Tax Rate
….…………………….......................Paid……....Income……….Paid
….……………….….........................(millions of dollars)
Procter & Gamble.........................1,765......120,702.......1.46%
National City Corp...........................497........24,178.......2.06%
Kroger.............................................641........18,518.......3.46%
Cardinal Health...............................488........17,663.......2.76%
American Electric Power................276........17,237.......1.60%
FirstEnergy..................................1,047........16,613.......6.30%
Fifth Third Bancorp.........................244........16,432.......1.48%
Keycorp.........................................335........12,650.......2.65%
Macy's............................................730........12,318........5.93%
Limited Brands................................564.......12,203.......4.62%
Progressive Corp................................0........11,934.......0.00%
Eaton...............................................82..........8,539.......0.96%
Parker Hannifin...............................161.........8,143........1.98%
Cincinnati Financial............................0.........6,984.......0.00%
Sherwin Williams............................275.........6,837.......4.02%
Duke Energy Ohio/Cinergy..............147.........5,997.......2.45%
Owens Illinois Group.........................69.........5,002.......1.38%
OH Total for all 17 Corps............7,321......321,950......2.27%
And below here is a listing of the 8 Ohio Mid-sized Corps with Total Core Pretax Income for the most recent 6 years of at least $2 bil each, but which had Total Core Pretax Income for the most recent 12 years of less than $5 bil, and thus weren’t included in the above list of the 17 Very Big Ohio Corps.
........................................Most Recent Six Years
.......................................State&Local.....................Effective
.......................................Corporate........Core......State&Local
..........State.......................Income.........Pretax......Tax Rate
.......Corporations.............Tax Paid.......Income........Paid
...........................................(Millions of Dollars)
American Financial Group.....15............3,386..........0.44%
Abercrombie & Fitch...........138............3,002..........4.60%
Cintas....................................98............2,758..........3.55%
Cliffs Natural Resources.........17............2,429..........0.70%
Scripps Ntwks Interactive......83............2,361..........3.52%
Lubrizol.................................16............2,156**.......0.74%
J M Smucker..........................38............2,044..........1.86%
E W Scripps............................99............1,999**.......4.95%
OH Total for all 8...............504..........20,135..........2.50%
** Excludes large Asset Impairment Charges
When you review the above two lists of the 25 Big and Mid-sized Ohio Corps, you have to be impressed with the quality and excellent financial performance.
But this strong financial performance is but a drop in the bucket in comparison to what has been going on with US Big Oil and Gas Corps. There has been a massive income shift in the past decade from non-Big Oil and Gas Corps to Big Oil and Gas Corps, which has been devastating to all non-Big Oil and Gas businesses.
To illustrate how this massive income shift in the past decade has applied to Ohio, there were 16 Very Profitable Ohio Non-Big Oil and Gas Big Corps, from the above list of 17, which were in existence for the entire past 12 years. The Total Core Pretax Income for these 16 Ohio Non-Big Oil and Gas Big Corps of $49.5 bil for the most recent two years was up 31% from the $37.6 bil earned a decade earlier.
On the other hand, the 35 US Oil and Gas Big Corps, 25 of which are based in Texas, generated Core Pretax Earnings of $373.7 bil for the most recent two years, which was an incredible 712% increase from the $46.0 bil earned a decade earlier. I'm not kidding!
US Big Oil has just economically devastated all of US Manufacturing in the past decade. And 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 earnings in the past decade have increased by a monstrous 712%. This is wrong and people should be outraged.
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 experienced 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.
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
Now on to updating some other States.
