This post updates my earlier post on Virginia Big Corps and State Corporate Income Taxes they pay.
In performing a quick review of SEC filings of large corps with an SEC State Location Code in Virginia, I found 9 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 here excludes large Asset Impairment Charges.
Below here is the effective state corporate income tax rates paid, which are computed by dividing the current state income tax paid by the consolidated core pretax income, both in total for the past twelve years for each of these 9 large Virginia Corps. These 9 large Virginia Corps below had a weighted average state corporate effective income tax rate paid of a 2.59%, or a 57% discount to Virginia’s current state corporate income tax rate of 6.00%.
….……………………......................Current……...Core……......State
….……………………........................State.....Consolidated..Effective
….……………………........................Tax………...Pretax………Tax Rate
….……………………........................Paid……....Income……….Paid
….……………….…..........................(Millions of Dollars)
..9. NVR……................................424…........6,173…….....6.87%
..8. Altria Group(2008-2009).....462………..9,666…….....4.78%
..7. Dominion Resources.............951……...24,825*.........3.83%
..6. Gannett……...........................628…......17,924*……....3.50%
..5. Norfolk Southern…................438…......15,116………...2.90%
..4. SLM.......................................231……...12,993……......1.78%
..3. Capital One Financial.............317……...21,532*….......1.47%
..2. AES..........................................11……...13,560*…......0.08%
..1. Genworth Financial(01-09)...(40)……...10,220………..(0.39)%
Total all 9.……….......................3,422…...132,009…….....2.59%
* Excludes large Asset Impairment Charges
For the most recent year, the effective state corporate income taxes paid by these 9 large Virgina Corps was an even lower 2.24%.
And then, below here is a summary of what I call a fair measure of the Total State Corporate Income Tax Loopholes Taken by the 7 large Virginia Corps with total such tax loopholes of at least $300 mil each for the past twelve years. In estimating what I think is a fair measurement of State Corporate Income Tax Loopholes Taken, for ease of computation, I started by multiplying the current Virginia Corporate Income Tax Rate of 6.00% by the total Consolidated Pretax Income of each large Virginia Corp for the last twelve years. Then, I subtracted the actual total State Income Tax Paid by each of these Corps for the same twelve years.
……………………….........................VA…….....State……..Resultant
………………….........….............Corporate..Effective.......Higher
………………….........………….........Tax……..Tax Rate…...State Tax
………………..........…………...........Rate……....Paid…....Last 12 Years
…………………………………………………....................(Millions of dollars)
1.. Capital One Financial..........6.00%.......1.47%.............975
2.. AES……...............................6.00%.......0.08%............803
3.. Genworth Financial............6.00%......(0.39)%............653
4.. SLM………….........................6.00%.......1.78%.............549
5.. Dominion Resources……….6.00%.........3.83%.............539
6.. Norfolk Southern……….......6.00%........2.90%.............469
7.. Gannett…………………..........6.00%.........3.50%............447
Total all 7…………………………………………4,434 (yeah, $4.4 bil)
For the most recent six years, the related estimated total State Corporate Income Tax Loopholes Taken, as I have defined them above, by these 7 large Virginia Corps, was $2.6 bil, as compared to $4.4 bil for the past twelve years.
Excluded from the above lists is McLean, VA based Freddie Mac, even though it generated total pretax profits of $43.8 bil for the nine years from 1998 to 2006. More than offsetting these profits were its huge pretax losses totaling $72.9 bil for the most recent three years from 2007 to 2009.
Once the US Government gets Fannie, Freddie, and the horrible housing crisis back on track, I don’t see why Fannie shouldn’t then start paying income taxes to Washington DC, and why Freddie shouldn’t then start paying more state income taxes. Likewise, I think that Reston, VA based SLM (Sallie Mae), included in the above lists, should be paying much more state corporate income taxes to many US States. All three of these companies are getting the benefit of many city and state services, so why shouldn’t they have to pay for them, like other companies do?
Looking at the first above list, you’ll find NVR, a Reston, VA based home builder. I think it is really telling that this is the only home builder in the country I have seen which made over $5 bil in Total Pretax Income for the most recent twelve years. Also, unlike the other home builders, NVR has made a profit in each of the most recent twelve years.
I think the above NVR consistent success story is a salient insight into why there is such a huge economic difference to working people between those living outside the Beltway versus inside the Beltway. Things just aren’t that bad economically in the greater DC area.
Let me add to this thought. Falls Church, VA based US government contractor General Dynamics was also excluded from the above list, even though it generated Total Pretax Income of $24.2 bil in the past twelve years. It didn't disclose all of its Current State Corporate Income Tax amounts, which frankly I don’t understand. It is able to pass on its state corporate income tax costs to the US government in its US government contracts.
General Dynamics has rocked in the Great Recession, with Pretax Profits of $7,117 mil for the most recent two years of 2008 and 2009. In comparison, in the decade earlier two years (1998 and 1999), its Pretax Profits were only $2,030 mil. That’s a 251% profit increase in the very troubled past decade.
But it’s not just General Dynamics that has flourished during this Great Recession, but also the other huge US government contractors. The other three huge US government contractors with a substantial portion of their sales to the US government are Lockheed Martin, Northrop Grumman and Raytheon.
These four US government contractors generated Net Sales in just 2009 of $128.7 bil, an increase of 91% over a decade ago in 1999 of $67.5 bil. That’s bad enough, but much worse is that the Total Pretax Income of these four US government contractors totaled $13.0 bil in 2009, up a much more substantial 227% over the $4.0 bil earned a decade earlier in 1999. Given how horrible the US economy is, there is no way that the US government should be permitting its huge US government contractors to be generating obscene profits like this, on the backs of US citizens, and also on the back of the US Deficit.
The only industry I have seen that has topped the huge US defense contractors in obscene profit growth of the past decade is US Big Oil.
And below here are the 4 Medium-sized Virginia 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 9 Big Virginia 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)
Computer Sciences(07-09)..(134)*….....2,927........(4.58)%
NII Holdings..............................2..........2,428..........0.08%
Advance Auto Parts.................87..........2,251..........3.86%
Dollar Tree..............................116..........2,053..........5.65%
VA Total for all 4......................71..........9,659..........0.74%
* Includes adjustments for uncertain tax positions
Anyway, 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.
Also, I think it makes sense to use some of the funds from the closing of these larger Corp State Income Tax Loopholes to provide some wise, highly stimulative, directly-targeted, job-creating tax incentives to small and medium-sized businesses.
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, including computer software investments, they make.....they could either take 100% first year tax expensing, or they could instead choose a refundable investment tax credit.
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, Virginia 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 Virginia.
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.
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
