The more I study the present US jobless recovery and the staggering amount of US Debt, the more I realize the significant role played by US Multinational Corps in creating the 2000s Lost Decade. Thus, I think it is only fair that US Multinational Corps pony in a healthy amount of money to help fund near-term bold, quick-hitting private sector US Job Creation as well as to fund a heavy dose of US Debt Reduction in both the medium term and in the long term.
Just like the country as a whole, Big Corps would be helped immensely by bold private sector US Job Creation and by a substantial reduction of the US Federal Debt. But the trick is to derive ways for Big Corps to provide funding for these desirable initiatives but to do so in such a way that also minimizes the harm to Big Corps of their funding here. I think it can be done. Just read on.
First, let me quantify why the 2000s were the Lost Decade for the US.
Here’s average annual US real GDP growth in each of the six most recent decades:
…1950s Decade……..4.2%
…1960s Decade……..4.4%
…1970s Decade……..3.3%
…1980s Decade……..3.1%
…1990s Decade….3.2%
…2000s Decade…1.9% Whoa!
When real GDP growth averages only 1.9% for an entire decade, a country is going to have substantial economic problems. The way I look at it, since average annual GDP growth averaged 3.2% for the three decades immediately preceding the 2000s Lost Decade, to get out of this huge economic crater, as evidenced by the dismal 1.9% annual GDP growth in the 2000s Lost Decade, I think the US should have an economic goal of averaging GDP annual growth of at least 4.5% in the 2010s Decade (i.e. 3.2% + (3.2% - 1.9%)). How are we doing? Well, a 2.7% real GDP growth in the 1Q of the 2010 Decade is not encouraging, especially since it is off of an extremely low, economic crater base.
Here's the US unemployment rate at the end of each of the past six decades, along with the change from the beginning of the decade.
...1950s...5.3% at Dec 31, 1959, down 1.3%
...1960s...3.5% at Dec 31, 1969, down 1.8%
...1970s...6.0% at Dec 31, 1979, up 2.5%
...1980s...5.4% at Dec 31, 1989, down 0.6%
...1990s...4.0% at Dec 31, 1999, down 1.4%
..2000s..10.0% at Dec 31, 2009, up 6.0%
With the updated US Bureau of Labor Statistics, the US unemployment rate recently topped out in October 2009 at 10.1%.
Of those Unemployed, here are the median weeks they were unemployed at the end of each of the past three decades, and also at the most recent June 2010:
...4.9 Weeks at Dec 31, 1989
...5.8 Weeks at Dec 31, 1999
..20.5 Weeks at Dec 31, 2009
..25.5 Weeks at Jun 30, 2010
Also of those Unemployed, here are the percentage of them who have been unemployed for 27 weeks or more at the end of each of the past three decades, and also at the most recent June 2010:
...9.6% at Dec 31, 1989
..12.1% at Dec 31, 1999
..39.8% at Dec 31, 2009
..45.5% at Jun 30, 2010
And here's US citizens considered Employed, but Working Part-time for Economic Reasons, at the end of each of the last three decades:
...4.8 mil at Dec 31, 1989
...3.3 mil at Dec 31, 1999, down 1.5 mil, or down 32%
...9.2 mil at Dec 31, 2009, up 5.9 mil, or up 179%
From reviewing all of the above percentages and numbers, the thing that sticks out to me here is....what's with the Bill Clinton employment magic? He obviously was doing something right on the employment front. Man, I'd consider bringing both Robert Reich and Bill Clinton back to offer some insights on how to jump-start private sector job creation.
The number of US Citizens Not in the Civilian Labor Force increased as follows in each of the past three decades:
1980s Decade...up 2.6 mil
1990s Decade...up 6.0 mil
2000s Decade...up 15.2 mil, to 83.9 mil
My read on the above trend here is that the 2000s Lost Decade frankly drove many people to the sidelines....just giving up on finding a job.
In like manner, the portion of US Citizens Not in the Civilian Labor Force but Wanting a Job, increased by 1.9 mil in the 2000s Decade to 6.3 mil, up an incredible 44% in the 2000s Decade.
When you study the US Bureau of Labor Statistics for the past thirty years, the US must add an average of 130,000 jobs each month just to handle the Civilian Labor Force growth. This 130,000 jobs equates to 15.6 mil for a decade.
Here’s net US jobs added (lost) in each decade, from the US Bureau of Labor Statistics:
…1950s Decade…..10.6 mil added (+24%)
…1960s Decade…..17.1 mil added (+31%)
…1970s Decade…..19.4 mil added (+27%)
…1980s Decade…..18.1 mil added (+20%)
…1990s Decade…..21.7 mil added (+20%)
…2000s Decade…..944,000 LOST (-1%)
And even more to the point, on net US jobs added (lost) just in the private sector in each decade:
…1950s Decade…..8.2 mil added (+22%)
…1960s Decade….13.0 mil added (+19%)
…1970s Decade….15.7 mil added (+27%)
…1980s Decade….16.2 mil added (+27%)
…1990s Decade….19.3 mil added (+21%)
…2000s Decade…2,885,000 LOST (-3%)
Yeah, to get out of this economic hole, the focus must be on substantially growing private sector jobs, which cratered in the 2000s Lost Decade. The US Government can't just sit by and continue to enact modest job creation initiatives. We clearly need very bold action on job creation.
And just what type of private sector US jobs have disappeared?....clearly Manufacturing Jobs top the list, due to the massive offshoring of these jobs by US Multinational Corps for lower tax and lower wage reasons in the 2000s Lost Decade. In fact, in the 2000s decade, the number of US manufacturing jobs declined by 5.7 mil, down a massive 33% from the beginning of the decade. Further, the number of US manufacturing jobs declined in each year of the 2000s decade. For a bit longer term perspective, in the past thirty years, the number of US manufacturing jobs has declined by 40%. And what happened to the number of all US private sector non-manufacturing jobs? They increased by 73% over the past thirty years. Clearly, the focus here must be on restoring the US manufacturing sector and the US middle class.
Also, I do find it interesting that in the 2000s Lost Decade, there were net government jobs added of 1,941,000, while there were net private sector jobs lost of 2,885,000. Also, in the past sixty years, the total net private sector jobs added increased by 185%, whereas the total net governmental jobs added increased by a much more substantial 278%. I think the country would be much better off economically, if the percentage growth in private sector jobs added increased much more markedly than those in the government sector, instead of the other way around.
Just focusing on US federal government jobs, in reducing the level of US Debt in the medium term and in the long term, I think a very fertile area lies in substantially reducing the present US federal government job mix. From my unfortunate first-hand experience, I am not so hot on the effectiveness of many US federal government employees. I saw first hand in a menacing IRS audit how US federal government employees target a taxpayer as prey, and with their continuing unbridled harassing, incompetence, dishonesty and substandard work ethic, can severely stifle small businesses for many years. It seems to me that whole-scale upgrading, changing the despicable culture, and training existing US federal government employees is much more needed than just adding more US federal government employees.
Also, I have observed in many instances where this federal government overkill has substantially slowed down businesses in their attempt to effectively deal with the ARRA Economic Stimulus Plan. I do think the Republicans are precisely correct when they assert that over-regulation is playing a major role in prolonging the jobless recovery. The country does need much more regulation due to the disastrous financial aftershocks from the laissez-faire 2000s Lost Decade. But clearly the Obama Administration has taken this initiative much too far....the necessary increased regulation must be wisely measured on a cost benefit basis, with particular focus on the impact on businesses, especially on smaller businesses, and on private sector job creation.
Here’s US Public Debt Outstanding and changes in each decade:
..All Years Through Dec 31, 1959….$..291 bil added
..1960s Decade………………………......$....78 bil added
..1970s Decade………………………......$..476 bil added
..1980s Decade………………………......$2,108 bil added
..1990s Decade………………………......$2,823 bil added
..2000s Decade…………………$6,535 bil added (53% of total)
=..All Years Through Dec 31, 2009…$12,311 bil
Clearly, the fiscal hawks are correct when they say the country must focus like a laser on reducing the US debt. Since the country also must spur job creation and GDP growth, what is needed are wise and prudent government initiatives that both spur economic growth and sustainable private sector job creation in the near term, and simultaneously reduce the US Deficit in the medium term and in the long term. Most pundits say this is impossible. I say it’s not….you just need to be financially savvy and a little bit creative.
Let me make the case for why I think large US multinational corps should help fund US job creation and US government debt reduction by studying in depth the annual reports and related footnotes in SEC filings of more than a decade of the 30 Dow Industrial companies.
In the 2000s Lost Decade, the present 30 Dow Industrial companies had Total Consolidated Worldwide Pretax Income from Continuing Operations of more than $2.9 trillion. Here is a breakdown of the companies in the top half of this $2.9 trillion:
…..#1.....Exxon Mobil…$458 bil
…..#2..Chevron………………$206 bil
…..#3..GE……………………...$198 bil
…..#4..Walmart………………$163 bil
…..#5..Microsoft……………..$163 bil
…..#6..Bank of America……$158 bil
…..#7..AT&T………………....$125 bil
…..#8..JNJ…………………….$120 bil
…..#9..IBM…………………....$116 bil
…..#10..Procter&Gamble…$106 bil
…..#11..JP Morgan Chase…$103 bil
…..#12..Verizon……………....$ 98 bil
…..#13..Pfizer………………....$ 98 bil
…..#14..Merck………………...$ 89 bil
…..#15..Intel…………………..$ 82 bil
To show the power at the very top of this top 15 list, #1 Exxon Mobil’s profit here is 16% of the total of the 30, and in combination with the profit of #2 Chevron, Big Oil makes up 23% of the total 30. Clearly, Big Oil is too dominant. I think the country was wrong in allowing Big Oil to merge in the late 1990s and I also think it would be wise to now break up Big Oil. When oil companies are this dominant, they have too much government influence and the rest of businesses, individuals, and all of Government suffer severely. Big Oil, with its substantial cost pressure on all of US businesses and US individuals, was a major player in creating the 2000s Lost Decade. And while they were severely damaging the US economy in the 2000s Lost Decade, Big Oil also were generating windfall profits. In the most recent three years (2007 through 2009), Exxon Mobil and Chevron combined generated Pretax Profits of $283.6 bil, up a massive 429% from their combined profits of $53.6 bil of a decade ago (1997 through 1999). And the US Government awarded all of Big Oil many lucrative tax loopholes, which turned these pretax windfall profits into after-tax obscene, windfall profits.
The bottom 15 of the $2.9 trillion includes some incredibly dominant, stellar companies such as Coca Cola, Home Depot, Cisco Systems, Hewlett Packard, Disney and McDonalds. However, the top 5 of the $2.9 trillion generated total profits which exceeded by $95 billion the profits of the entire bottom 15.
And it’s not just the two Big Oil companies that played a major role in creating the 2000s Lost Decade.
More than any other company, #3 GE benefited incredibly by taking advantage of both lower income tax rates in foreign countries as well as US tax breaks. In fact, for the most recent four years (2006 through 2009), GE generated $82.2 bil of Consolidated Worldwide Pretax Income. And how much did GE pay in total to the US government currently in federal income taxes related to its US current federal income tax provision for those same four years? Nothing, instead GE got current US federal income tax refunds of $1.5 bil in total for those same four years.. And there are both Democrats and Republicans in the US Congress who support GE in obtaining this incredible largesse. I have to ask....How can the US Government be serious about US Deficit Reduction when it permits something like this to happen? And how in the world can some US Senators reject Unemployment Insurance emergency spending for the Unemployed because it increases the US Deficit, when they let a massively profitable Big Corp like GE pay nothing in federal income taxes for four years, which clearly increases the US Deficit from what in all fairness it should be.
#4 Walmart played a role in US job losses in the 2000s Lost Decade by sourcing much of its merchandise from China. And with its economic power, Walmart put many small businesses out of business.
Like GE, #5 Microsoft also accrued major economic benefits from taking advantage of the lower taxed environment in foreign jurisdictions.
Below is the annual trend in Total Consolidated Worldwide Pretax Income for the 30 Dow Industrial companies, along with the percentage change from the preceding year:
…1997…..$153 bil
…1998…..$156 bil, up 2%
…1999…..$189 bil, up 21%
…2000…..$231 bil, up 22%
…2001…..$184 bil, down 20%
…2002…..$185 bil, up 1%
…2003…..$228 bil, up 23%
…2004…..$274 bil, up 20%
…2005.....$321 bil, up 17%
…2006…..$384 bil, up 20%
…2007…..$404 bil, up 5%
…2008…..$390 bil, down 4%
…2009…..$305 bil, down 22%
In the most recent financially depressed year of 2009, Total Consolidated Worldwide Pretax Income for these 30 Dow Industrials was $305 bil, up 62% from the 1999 comparable item of a decade ago of $189 bil. However, such profit numbers on an after tax basis increased by a much higher 78%. And exclusive of Big Oil, the rest of the Dow Industrials had Total Consolidated Worldwide Pretax Income for 2009 which increased 42% from a decade ago, whereas the comparable after-tax profit numbers increased by a much higher 67%.
What’s in the world is going on with the much more favorable after tax profit growth percentages? It’s all about income shifting from the higher tax rate US to lower tax rate International jurisdictions. For all Dow Industrial companies other than the two Big Oil companies, the Total Consolidated Book Effective Tax Rate for 2009 was only 22.1%, a massive 11.4% below such comparable tax rate of a decade ago, in 1999, of 33.5%.
Here is an individual company breakdown of the Consolidated Book Effective Tax Rate Reductions higher than 5% between the decade ago 1999 to the most recent 2009:
……………………………………………………..............Lower Consolidated
………………………………………………………............Effective Tax Rate
………………………………….....2009……..1999…....From a Decade Ago
…..Caterpillar………………..(47.5)%.....32.0%..........79.5%
…..Bank of America……....(43.9)%......35.5%..........79.4%
…..GE………………………......(10.5)%.....23.0%..........33.5%
…..Verizon……………………..10.5%......37.0%..........26.5%
…..Merck……………………....14.8%.......31.7%..........16.9%
…..DuPont……………………..19.0%.......35.8%..........16.8%
…..Cisco Systems…………….20.3%.......36.8%..........16.5%
…..Coca Cola………………….22.8%.......36.3%...........13.5%
…..Kraft Foods……………….29.4%.......42.3%...........13.1%
…..Intel………………………...23.4%.......34.9%...........11.5%
…..Procter and Gamble…..26.3%……..35.5%............9.2%
…..IBM………………………....26.0%........34.4%............8.4%
…..Pfizer…………………….....20.3%........28.3%............8.0%
…..Microsoft…………………..26.5%........34.5%............8.0%
…..Boeing……………………....22.9%........30.5%............7.4%
…..Hewlett Packard………….18.6%........26.0%............7.4%
…..JP Morgan Chase…………27.5%........34.7%………...7.2%
…..AT&T……………………......32.4%.........39.4%............7.0%
…..Disney……………………....36.2%.........42.2%...........6.0%
…..3M……………………….......30.0%........35.8%............5.8%
…..McDonald’s………………..26.8%.........32.5%...........5.7%
…..JNJ………………………......22.1%.........27.6%...........5.4%
All Dow except 2 Big Oil.22.1%.......33.5%.........11.4%
And to illustrate this isn’t just a one year blip, for the most recent three years (2007-9), the comparable effective tax rate was 24.5%, which was 9.1% lower than that of the comparable three years of a decade ago (1997-9). Here is an individual company breakdown of the Total Consolidated Book Effective Tax Rate Reductions above 5% from the three years of a decade ago to the most recent three years:
……………………………………………………................Lower Consolidated
……………………………………………………….............Effective Tax Rate
……………………………….........2007-9…..1997-9.From a Decade Ago
…..Bank of America…………...15.0%......36.4%............21.4%
…..Cisco Systems……………....21.5%......40.2%...........18.7%
…..Verizon…………………….....20.3%......38.1%............17.8%
…..GE………………………............7.1%.......24.2%............17.1%
…..Merck…………………….......15.2%.......32.1%............16.9%
…..DuPont…………………….....18.6%.......34.1%............15.5%
…..Kraft Foods………………....29.6%.......43.2%............13.6%
…..Pfizer……………………........16.3%.......27.5%............11.2%
…..Caterpillar………………......21.6%.......31.9%............10.3%
…..Coca Cola…………………....22.8%........33.0%............10.2%
…..JP Morgan Chase…………..26.2%........35.5%………....9.3%
…..Microsoft………………….....27.3%........35.8%.............8.5%
…..Intel……………………….......26.2%........34.5%.............8.3%
…..Procter and Gamble………26.7%……..34.8%.............8.1%
…..Hewlett Packard…………...20.0%........27.6%............7.6%
…..JNJ………………………........22.1%.........27.8%.............5.7%
…..IBM……………………….......26.7%.........32.2%.............5.5%
All Dow except 2 Big Oil.......24.5%.........33.6%.............9.1%
Whoa, it looks like the Corporate International Tax Staffs are key players in Big US Multinational Corps’ after-tax profit improvements in the past decade.
So just how was this accomplished? It’s all about income shifting from the higher taxed US to the mostly lower taxed Intl jurisdictions. Here is the US Pretax Income Mix as a percentage of Worldwide Pretax Income in total for all of the 30 Dow Industrial companies for each year in the past decade:
…..1999…..71.1%
…..2000…..67.4%
…..2001…..61.6%
…..2002…..61.4%
…..2003…..61.6%
…..2004…..54.7%
…..2005…..58.6%
…..2006…..54.1%
…..2007…..50.6%
…..2008…..41.0%
…..2009….39.2%
The amount of the country’s Debt grows from the lower corporate income tax receipts when a multinational corp shifts income from the US to Intl. Here are some of the larger individual company US income mix percentage reductions in the past decade from 1999 to 2009:
……………………….......US Pretax Income Mix
…………………….....2009…...1999…...Decrease
Bank of America…(158)%...100%.......258%
Caterpillar………...(114)%......74%.......188%
GE…………………........(5)%......81%.........86%
Pfizer………………....(34)%......45%.........79%
Microsoft……………..28%.......90%.........62%
Cisco Systems……….21%........65%........44%
Merck……………….....35%........65%........30%
JP Morgan Chase……39%........68%........29%
Chevron……………......7%........34%........27%
Exxon Mobil…………..7%........29%.........22%
3M…………………......50%........70%.........20%
Dupont……………….....8%........27%.........19%
Kraft Foods…………..54%........65%.........11%
JNJ………………….....45%........56%.........11%
All 30 Dow Cos…39%........71%.........32%
And then here’s an individual company breakdown of the US Pretax Income reductions above $1 bil in the past decade:
…………………………....US Pretax Income……………
…………………………...2009……….1999……..Reduction
Bank of America…$(6.9) bil…..$12.1 bil…..$19.1 bil
GE……………………...$( .5) bil…..$11.3 bil…..$11.8 bil
Pfizer…………………$(3.6) bil…...$ 3.1 bil…..$ 6.7 bil
Microsoft……………$ 5.5 bil…...$10.6 bil…..$ 5.1 bil
Intel……………………$ 3.2 bil…...$ 7.2 bil…..$ 4.0 bil
Verizon………………$ 10.7 bil….$13.2 bil…..$ 2.5 bil
Caterpillar……………$( .6) bil…...$ 1.1 bil…..$ 1.7 bil
Boeing………………...$ 1.6 bil…...$ 3.3 bil…..$ 1.7 bil
JP Morgan Chase…$ 6.3 bil…...$ 7.8 bil…..$ 1.5 bil
Alcoa………………….$( .5) bil…....$ .6 bil…...$ 1.1 bil
Consolidated Worldwide Pretax Income for 2009 of these 30 Dow companies of $305 bil is 62% higher than that of a decade ago in 1999 of $189 bil. In looking at the global location of this consolidated worldwide profit, Intl Pretax Income for 2009 of these 30 Dow companies of $185 bil is 236% higher than that of a decade ago in 1999 of $55 bil. And then, for the same time period, US Pretax Income for 2009 is only $120 bil, or down 11% from that of a decade ago in 1999 of $134 bil. Thus, what you have here is a major income shift and the huge losers are the US Government, the State Governments, both in substantially lower tax receipts, and the US middle class from the much higher US employment/underemployment rates and the much lower real wages resulting from US jobs being massively offshored in the 2000s Lost Decade.
In 2009, US Pretax Income of these 30 Dow companies totaled $120 bil, which was 39.2% of Worldwide Income. If the 71.1% US Mix of a decade ago had not changed, US Pretax Income for 2009 would have been $97 bil higher. In like manner, US Pretax Income for these same companies in 2008 totaled $160 bil, which was 41.0% of Worldwide Income. If the 71.1% US Mix of 1999 had not changed, US Pretax Income for 2008 would have been $117 bil higher. For the entire 2000s decade, if the 1999 US Mix of 71.1% prevailed, total US Pretax income for these 30 Dow companies would have been $513 bil higher. When you extrapolate this over the entire universe of US multinational corps, you should get several trillions of dollars of what would have been higher US Pretax Income for the 2000s Lost Decade.….and what we missed in the 2000s Lost Decade were substantially higher US corporate income tax receipts and also substantially higher US individual income tax and payroll tax receipts from the offshoring of US jobs.
Companies are required to disclose in their income tax footnotes the amounts of their foreign tax breaks they received as compared with the 35% US federal statutory rate. For the 20 Dow companies that disclosed them, here are the total foreign tax breaks by year, along with the percentage increase over the preceding year:
1999…..$4.2 bil, +39%
2000…..$5.1 bil, +24%
2001…..$5.8 bil, +13%
2002…..$8.4 bil, +44%
2003…..$9.4 bil, +12%
2004…$12.4 bil, +32%
2005…$13.7 bil, +10%
2006…$17.0 bil, +24%
2007…$18.8 bil, +11%
2008…$23.5 bil, +25%
2009…$20.2 bil
Decade Total…$134 bil
Clearly, these huge foreign tax breaks from Intl income shifts didn’t start picking up steam until the start of the 2000s decade, as can be seen by how the 1999 total foreign tax breaks for these 20 Dow companies of only $4.2 bil are dwarfed by such foreign tax break totals for 2008 of $23.5 bil and for 2009 of $20.2 bil. When you think about the above explosive annual growth trend here, where the foreign tax breaks of these 20 Dow companies in 2008 and 2009 are 4.9 times and 5.7 times the foreign breaks of a decade ago in 1999, and then extrapolate these 20 Dow companies over the universe of all US multinational corps, if the same pattern holds, the total foreign tax breaks for the 2010s decade should be substantially north of $1 trillion.
And then here is an individual company breakdown of the total amount of foreign tax breaks received by these 20 Dow companies over the 2000 decade:
…..GE…………………....$29.3 bil
…..Pfizer………………..$16.7 bil
…..JNJ…………………...$12.6 bil
…..Merck………………....$ 9.7 bil
…..Hewlett Packard……$ 9.0 bil
…..IBM………………….....$ 7.5 bil
…..Cisco Systems……….$ 6.8 bil
…..Coca Cola……………..$ 6.5 bil
…..Microsoft……….........$ 6.4 bil
…..Procter&Gamble.......$ 4.8 bil
…..Intel……………..........$ 3.4 bil
…..United Technologies$ 2.9 bil
…..Dupont………………...$ 2.7 bil
…..JP Morgan Chase……$ 2.7 bil
…..Walmart……………....$ 2.5 bil
…..McDonald’s…………..$ 2.1 bil
…..Bank of America…….$ 2.1 bil
…..American Express….$ 1.4 bil
…..Alcoa……………….....$ 1.3 bil
…..3M…………………......$ 1.2 bil
And it’s not just a Dow company phenomenon. From a very quick review, I found 53 non-Dow companies with more than $90 mil of foreign tax breaks reported in just 2009. Here are the total foreign tax breaks of these 53 non-Dow companies for the past three years:
…..2007…..$14.5 bil
…..2008…..$17.3 bil, up 19% over 2007
…..2009…..$19.2 bil, up 11% over 2008
And these foreign tax breaks for 2009 reduced the consolidated worldwide effective tax rate of these 53 companies in total by an amazing 13.5%.....thus, the clear incentive to shift US income and US jobs overseas.
Here is an individual company breakdown of the foreign tax breaks of these 53 non-Dow companies for just the most recent year of 2009:
...Citigroup............ $2.0 bil
...Google................ $1.3 bil
...Abbott Labs......... $1.2 bil
...Amgen................. $1.0 bil
...Philip Morris........ $0.8 bil
...Eli Lilly............... $0.7 bil
...Goldman Sachs..... $0.7 bil
...Oracle................. $0.7 bil
...Medtronic............ $0.7 bil
...Apple.................. $0.6 bil
...PepsiCo................ $0.6 bil
...Schlumberger........ $0.6 bil
...Bristol Myers Squibb $0.6 bil
...Baxter................. $0.5 bil
...eBay................... $0.5 bil
...Qualcomm............ $0.4 bil
...Gilead Sciences..... $0.4 bil
...Covidien.............. $0.3 bil
...Nike.................... $0.3 bil
...Boston Scientific... $0.3 bil
...EMC..................... $0.2 bil
...Archer Daniels Midland $0.2 bil
...Stryker................ $0.2 bil
...Morgan Stanley..... $0.2 bil
...Amazon................ $0.2 bil
...First Solar............ $0.2 bil
...Honeywell............. $0.2 bil
...Emerson Electric.... $0.2 bil
...Danaher................. $0.2 bil
...Corning.................. $0.2 bil
...Bunge.................... $0.2 bil
...Eaton.................... $0.2 bil
...Celgene.................. $0.2 bil
...Yum Brands............ $0.2 bil
...Dell........................ $0.2 bil
...Accenture............... $0.2 bil
..Thermo Fisher Scientific$0.1 bil
...McKesson................ $0.1 bil
...Marvell Technology.. $0.1 bil
...Cognizant Technology $0.1 bil
...Praxair..................... $0.1 bil
...Tyco Electronics....... $0.1 bil
...Ingersoll-Rand......... $0.1 bil
...Coca Cola Enterprises $0.1 bil
...Monsanto................ $0.1 bil
...Becton Dickinson...... $0.1 bil
...Forest Labs.............. $0.1 bil
...NetApp.................... $0.1 bil
...Texas Instruments.... $0.1 bil
...Zimmer Holdings...... $0.1 bil
...Cardinal Health......... $0.1 bil
...Franklin Resources.... $0.1 bil
...Adobe........................ $0.1 bil
Total all 53 non-Dow Cos $19.2 bil
Now let me turn my attention to the US Pretax Income and the resultant US current federal income taxes paid or payable in each year by these 30 Dow Industrial companies, as reported in their income tax footnotes in their annual reports .
The US Current Effective Federal Income Tax Rate is defined as the US Current Federal Income Tax Paid or Payable in each year divided by the US Pretax Income in the same year. Below here is such US Current Effective Tax Rate in total for all 30 Dow companies, except for Pfizer in 2009, since it had a large foreign earnings repatriation related to its acquisition of Wyeth.
…..2000…..28.5%
…..2001…..27.1%
…..2002…18.2%
…..2003….19.7%
…..2004…..28.4%
…..2005…..28.8%
…..2006…..28.8%
…..2007…..29.0%
…..2008…25.7%
…..2009…18.7%
As you can see, all of these above effective federal income tax rates are significantly below the US federal statutory tax rate of 35%. Also, the major reason for the lower US current effective tax rates above for 2002 and 2003 was probably due to the first year 30% bonus tax depreciation enacted after 9/ll. Likewise, the main reason for the lower US current effective tax rates in 2008 and 2009 was probably due to the first year 50% bonus tax depreciation.
But there’s a clear problem here with the first year bonus tax depreciation. Here is the net US private sector jobs added (lost) in those years:
…..2002……..773,000 jobs lost
…..2003……..129,000 jobs added
…..2008…..3,807,000 jobs lost
…..2009…..4,660,000 jobs lost
The morale of the story here is the first year bonus tax depreciation doesn’t create jobs. In fact, it does just the opposite, since technological investments are made to make companies, especially large corps, more productive and thus they end up reducing jobs. And it also reduces the US Government coffers substantially in the short term.
Big Corps push for first year bonus tax depreciation and their US Congressional shills, on both sides of the aisle, cave in to them, despite the very harmful effects to the country. I wouldn’t implement bonus tax depreciation, unless a company gets it only if it is also accompanied by US full-time payroll count increases and retention requirements.
I think it would be helpful to lay out the US current effective tax rate by company for the most recent two years (2008 and 2009 combined) which are either unusually low vs. the 35% US federal statutory tax rate or which are much lower than such effective tax rate for the preceding four years (2004 through 2007 combined).
……………………….........US Current Effective Tax Rate……
………………………….....2008-9…....2004-7….Reduction
…..GE…………………(74.5)%.........8.5%........82.9%
…..Boeing…………….(1.6)%...........5.5%..........7.1%
…..Verizon……………(1.0)%........22.2%.......23.2%
…..DuPont………………3.2%.........22.4%........19.2%
…..IBM……………………4.5%...........5.7%..........1.2%
…..Hewlett Packard…9.4%..........14.8%..........5.4%
…..Merck………………...9.5%........101.5%........92.0%
…..AT&T……………….10.2%..........27.9%.........17.7%
…..UTX……………………..14.9%..........17.2%...........2.3%
…..Caterpillar…………….15.4%.........32.8%..........17.4%
…..Procter & Gamble….15.4%..........27.3%.........12.1%
…..Exxon Mobil…………17.0%..........30.2%.........13.2%
…..3M……………………....21.1%.........34.6%..........13.5%
…..JNJ……………………...34.6%.........44.8%..........10.2%
Clearly, from a review of the above US current federal effective tax rates, existing tax law permits many companies to pay incredibly low federal corporate income taxes. I think an in depth review of the recent Schedule M-3’s filed by these companies should easily trigger why these above current US effective tax rates are so low and, coupled with some creativity and financial savvy, what tax law changes should be enacted to have all companies pay a fairer amount of US corporate income taxes.
But I have to point out that for some members in the US Senate to now assert that they don't want the government to pay clearly emergency Unemployment Compensation Benefits to the Unemployed because it increases the US deficit, when these same US Senators were also the enablers of Multinational Corp offshoring, which both substantially increased the US Deficit due to massively lower US tax receipts, and simultaneously, created much of the reason so many are now unemployed, at no fault of their own....is flat out incongruous and frankly mean-spirited. And then for these same US Senators to pile on by permitting Big Corps' US income that is not offshored to be taxed at such incredibly low federal income effective tax rates, and in some cases, even negative federal effective income tax rates....is frankly disgusting and US citizens should be outraged.
The above analysis clearly shows that many of these Big US Multinational Corps have gotten substantial economic tax benefits in the 2000s Lost Decade from shifting a substantial amount of income, and the related US jobs, overseas and also from the ability to minimize their current corporate income taxes paid to the US government. But on the downside, as a result of these actions, the US unemployment and underemployment rates have ramped up dramatically, the US Federal Deficit has ballooned, and State Government coffers have plummeted. Thus, I think it is only fair that Big US Multinational Corps now pony in money to help pay for the desperately needed US private sector job creation and for US Debt reduction in the medium term and in the long term.
To better understand how Big Corps think, their overriding goal is to increase reported GAAP earnings. Thus, the focus in deriving the best strategy to have Big Corps fund US private sector job creation and US deficit reduction is to find ways where the Big Corp impact on their reported GAAP earnings is softened.
For Big Corps to make partial estimated deposits on their outstanding tax audit liabilities already recorded on their books is clearly both fair and a funding winner. There would be no earnings charge to the Big Corps for this funding initiative because it has already been recorded on their books. But yet the positive CB0 scoring to the US Government over the next ten years is just massive.
A second wise funding gem is to use measures that end up being Big Corp temporary tax differences (i.e. the total tax deductions don’t change, they just get moved to later years). These temporary tax difference funding approaches don’t impact Corp reported earnings. I think the best approach here is to time the tax deduction reduction so that it starts after the horrible US structural recession has ceased (perhaps after say three years) and then to move the offsetting higher tax deduction to outside the ten-year CBO scoring window. There are hundreds of funding opportunities that could incorporate this temporary tax difference strategy. Here are eight of them, most of which could yield positive ten-year CBO scoring that is very substantial.
First, the timing of when certain marketing, selling and advertising costs are tax deductible could be lengthened to either one year, eighteen months, two years or perhaps some even longer term. And this life lengthening shouldn’t start until after the US structural recession is over, say start scaling it in starting in the fourth year. From a fairness standpoint, many of these marketing, selling and advertising costs are in essence Investments, which benefit the corporation for many, many years.
Second, the IRS has devised both Class Life systems and Property systems for depreciable property. The strategy here is to not change the total tax depreciation but to instead move some of these tax deductions to outside the ten-year US Government CBO scoring period.
I would focus first on the Seven-Year Property category, which includes property with a Class Life of 10 to 16 years. By depreciating this property for tax purposes as Seven-Year Property, the present tax depreciation deductions occur over a period of eight years. If instead, this tax deduction was lengthened to say the midpoint of this Class Life, or 13 years, the US Government’s CBO scoring will be substantially positive. I would make this change now for just the property additions of just the next two years, since those would be the only ones where you would get positive ten-year CBO scoring for now. And then down the road in several years, you could do this again…it ends up being a ten-year positive CBO scoring funding strategy that keeps giving. I would even consider making it eventually an annual funding vehicle as a key part of the annual tax extenders. And from a fairness standpoint, the tax depreciation for this Class Life Property is already receiving the very attractive tax benefit of an accelerated depreciation method. Further, the IRS has determined that this property’s Class Life is from 10 to 16 years, not the much shorter 7 or 8 years.
Also, I would follow a similar scheme on Ten-Year Property, which has a Class Life of 16 to 20 years, Fifteen-Year Property, which has a Class Life of 20 to 25 years, and some of the Twenty-Year Property, which has a Class Life of 25 years or more.
Third, Section 197 Intangible Assets include a multitude of items and are now tax deductible over a 15 year period. In all fairness, many of these intangible assets have economic benefits to the business far beyond 15 years. I would extend the tax life here to 20, 25 or even 30 years.
Fourth, many insurance companies, including health insurance companies, are able to deduct each year for federal income tax purposes some of their estimated insurance claim liabilities, even though they are not fixed in amount. I would delay the tax deductibility here until the years these claims become fixed in amount, which is the general tax rule. In all fairness, these insurance companies are presently getting the benefit of a tax loophole here, not enjoyed by many other industries. And there will be no hit to insurance companies' earnings for this tax change.
Fifth, many insurance companies, including health insurance companies, are able to defer each year for federal income tax purposes the taxability of some of their unearned premiums received in cash. I would make these premiums taxable when the cash is received, consistent with the general tax rule on when revenues are taxable. It seems only fair to close this tax loophole, not enjoyed by many other industries. And insurance companies would not get a hit to their earnings for this tax change.
Sixth, with all of the horrible financial havoc swaps and other financial derivatives have played on the US and world economies, I think the last thing we want to do is to give tax incentives for any financial derivative. If anything, we should give tax disincentives for them. The financial firm arranging the swaps and other financial derivatives incurs a lot of internal costs in designing, implementing and marketing the swaps and other derivative transactions, and also could have lucrative compensation programs for various executives and employees in which compensation is based on measures like fees or positive interest spreads earned in swap or other financial derivative transactions. Thus, I think all the substantial costs incurred by the financial firm to generate the fees received by the financial firm, including all compensation driven by the level of swap fees and other financial derivative fees, should not be tax deductible in the year these costs are incurred. Instead, in all fairness, they should all be deferred for tax purposes and spread over the life of the related swap and other financial derivative transactions.
And seventh, for all large financial firms, there are substantial internal costs incurred which are necessary to acquire each of their many financial assets and financial liabilities. These would include employee salaries, commissions, incentive compensation, employee benefit costs, travel and many other costs. And there are also a lot of external costs to acquire these assets and liabilities…examples would be items like external legal costs and CPA firm services for accounting and tax advice. My understanding is that many of these costs are presently tax deducted when they are incurred. I would instead enact tax legislation that would require all of these internal and external costs to be initially allocated to the related asset or as a reduction to the related liability, and then to have the timing of the tax deduction of these allocated assets or reduction to liabilities follow the movement of the related assets and liabilities. This seems to me to be a very fair approach in timing the tax deduction.
The large financial firms that I would include in my sixth and seventh proposals above would include US firms like JP Morgan Chase, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, GE Capital, AIG and others. In addition, I would include large foreign firms with significant US operations like Barclays, UBS, Credit Suisse, ING, Deutsche Bank, and others.
I think my sixth and seventh proposals above related to large financial firms (i.e. deferring financial derivative-related costs and also deferring other internal and external costs related to many financial assets and financial liabilities, and instead spreading both of these tax deductions over the life of the related financial derivatives, financial assets and financial liabilities) seems to me to be a much better way to have the large financial firms pay for all of TARP ONE and the remaining shortfall of TARP TWO than to impose a substantial annual stand alone bank tax. When I do the estimated mathematics here, the positive CBO scoring to the US Government over the next ten years of these two proposals could well cover both of these TARP shortfalls. And then the positive CBO scoring to the US Government after the first ten years just keeps growing and growing annually by leaps and bounds. Also, both my sixth and seventh above proposals do not impact Corp reported earnings, since they are treated as temporary tax differences, whereas a stand alone bank tax would reduce Corp reported earnings.
Eighth, the LIFO Inventory tax loophole should be closed for all companies above a certain size in all industries. There's no earnings hit here. Nearly all companies now using LIFO would switch their inventory accounting. And as an added benefit, the switch out of the unrealistic LIFO accounting will result in much stronger financial statements of these companies....much higher cumulative earnings and higher equity. I wouldn't have corps start paying for the federal income taxes resulting from this switch out of LIFO until after the country is completely out of this horrible structural recession...thus start scaling it in after say three years.
But also, in all fairness, we need some US Big Corp funding sources that act as disincentives to offshore US jobs, the financial aftershocks of which are one of the main reasons for the double economic disaster we now face: low unemployment/underemployment rates and a nosebleed level of US Debt.
Well, the unremitted foreign earnings of more than 1,000 US Multinational Corps are estimated to now be a massive $1.6 trillion and continue to grow like weeds. I think the country should take advantage of this massive funding vehicle in very wise, measured ways.
One measured way to soften the Big Corp negative earnings impact of this funding is for the US Government to keenly use foreign earnings repatriation tax rule tweaks to incentivize US Multinational Corps to fund US directly-related job creating investments, US R&D expenditures, and US directly-related job-creating capital expenditures. The potential favorable CBO scoring here is just massive.
Also, to address the financially devastating offshoring problem, for 2010 and going forward, I think a multinational corp above a certain size should pay an additional US income tax for years in which its US Pretax Income Mix (i.e. as a percentage of its Worldwide Pretax Income) is clearly unreasonably low in comparison with its US Revenue Mix. To soften the blow on the hit to earnings of multinational corps here, a multinational corp should have the option of paying for this annual tax by a like amount of foreign earnings repatriation tax related to its foreign earnings repatriated, which should be given an incentivized Dividend Received Deduction. The favorable CBO scoring to the US Government on just this proposal could be substantial.
Further, as another measure to address the devastating offshoring problem, for 2010 and going forward, I think a US multinational corp above a certain size, manufacturing products in a low wage or low tax haven offshore and then subsequently selling this product back to a US customer, should pay a US tax computed as a percentage of the sales price to the US customer, with a portion of this tax being transferred to US States in some reasonable manner. To soften the blow on the hit to earnings of multinational corps here, a multinational corp should have the option of paying for this annual tax by a like amount of foreign earnings repatriation tax related to its foreign earnings repatriated, which should be given an incentivized Dividend Received Deduction. Depending upon what percentage of sales is chosen, the favorable CBO scoring to the US Government on just this proposal could be off the charts.
And then as a final initiative to disincentivize offshoring of US jobs, but this initiative doesn't use a foreign earnings repatriation funding vehicle, I think all separation costs and all other costs, resulting from a plant closing in which a US plant is moved offshore, should not be tax deductible by the corporation moving its plant offshore. Also, the US manufacturer moving its plant overseas should get a reasonably computed and fair tax recapture of its Domestic Production Activities Tax Deduction for all past years in which it received this lucrative tax deduction (this tax deduction started in 2005). And further, in all subsequent years, the Domestic Production Activities Tax Deduction percentage for companies that have moved US jobs overseas would be reduced to below the present 100 percent. To derive this lower than 100% percentage, for the numerator, I would subtract the number of cumulative past jobs lost when they were moved overseas from the number of all US employees; and the denominator would be the number of all US employees. And the money raised from the tax recapture of the past Domestic Production Activities Tax Deduction and from the disallowance of separation and related costs should be used to provide direct tax and other incentives for new manufacturers and other companies to invest in the city or area where the plant was closed and moved overseas.
Rapping this up, for the past nearly three years, the country has faced a horrible double economic crisis with the horrendous unemployment and underemployment rates and with the massive US Debt. And these two economic disasters feed on each other…high unemployment continues to increase the Federal Deficit and the high and growing US Debt load has prevented the US government from taking bold action on real, private sector job creation.
Frankly, I think that even though they are very well intentioned, the economic team of the Obama Administration has continued to severely overestimate the private sector job creation in the ARRA Economic Stimulus Plan and to severely underestimate the magnitude of the country's structural recession that we still face.
I also think that members on both sides of the aisle in the US Congress have let the country down in their handling of the economy in the past 18 months. I think the intense focus of each has been centered on blaming each other for the economic mess the country is now in, instead of trying to solve the problem.
I think the growing private sector jobless problem of nearly the past three years is clearly due to insufficient US business demand. For whatever reasons, the US Congress has decided that it is not necessary to spur US business demand sufficiently enough to trigger private sector job creation. Citizens are angry, and get angrier by the day, that the government continues to work on what the government wants to work on, instead of working on what US citizens want them to work on....which is clearly private sector, long-term job creation, wisely funded.
Although it did create many jobs, I think the expensive ARRA Economic Stimulus Plan could have been better designed, using businesses as key partners with the US government, to directly create more US long-term, private sector jobs. Further, I have seen many other things enacted by the US Congress since then, which in the aggregate were quite expensive, but have done little or nothing to improve the jobs picture or the horrible housing situation. That said, that is the past, we have to deal with what we now have….a horrible jobless recovery, severely pressured by a substantial US Debt load.
Big US Multinational Corps will benefit greatly from wise initiatives that both spur US private sector job creation and also reduce the US Debt. Despite this, I think there is still a portion of the Big US Multinational Corp community, along with their supporters in the US Congress, who are not willing to work with the Obama Administration to help get the country out of this horrible economic mess it finds itself in. Instead, I think there are some of these Big Corp supporters in the US Congress who are doing everything in their power to see to it that the Obama Administration fails, despite the disastrous economic consequences to the country and to its citizens. I think this strategy is not in the best interests of the country, and frankly disgusting.
Big US Multinational Corps can and should play a key role in getting the country out of its current economic crater. And the US Government must act much more boldly, quickly and wisely to address this economic mess.
Friday, July 2, 2010
Saturday, June 5, 2010
Private Sector Job Creation Initiatives Must Be Bolder and Quicker
This isn’t your typical cyclical US recession. Instead, this is a structural recession. To solve the catastrophic unemployment/underemployment/low wage and US federal deficit problems triggered by this structural recession, much bolder, creative actions are needed, that are also quick hitters.
Let me explain why I think the Economic Stimulus, although very well intentioned, hasn’t been very effective in reducing the unemployment/underemployment rates. In doing so, let me use an analogy from the recent BP oil spill in the Gulf of Mexico.
When you have oil all throughout the Gulf, and you try to get rid of it “One Scoop at a Time”, you have no success, especially when more oil keeps spilling out in the Gulf.
So much of the Economic Stimulus was designed the same way……”One Project at a Time”. On so many of the projects, the government, being fair, thorough and transparent, takes quite a long time to review each proposal and then decides which company, organization or individual best deserves the government money incentives. This is crazily inefficient…..probably designed by academic economists and/or government bureaucrats, without the requisite business acumen. And just like more oil continuing to be spilled in the Gulf, the unemployed and underemployed rolls, as well as the lower wage full-time jobs, keep expanding from US jobs continuing to be transferred overseas, from US jobs cut due to US company productivity initiatives, and from the many newly-minted college graduates, high school graduates and high school and college dropouts.
Instead, I think what should have happened was for the US government to creatively design US government desirable tax incentives for businesses to execute. Thus, you would be unleashing the creativity of all of businesses, right away, to solve the deep, structural US economic problem. And can businesses ever quickly respond to something like this…..the key salient point to understand is that businesses are driven to action by reported earnings. You give them an incentive to increase their earnings, they’ll go after it quickly and intensely.
Why is this a structural recession rather than a typical cyclical recession?
So many pundits think that if you solve the financial markets and the housing regulatory problems, the jobless problem will later go away in a reasonable amount of time. This is crazy reasoning. You fix the regs, you still don't have business demand.
Many of these same pundits also think the major problem causing joblessness is that there is no lending to small businesses. However, the major problem in reality is the lack of demand for the products and services of the small businesses, caused by the horrible economic crater we are in. You really can't blame a prudent bank for not lending to a small business, whose financial statements are not sufficiently solid, and more importantly, whose future cash flows are now even more uncertain given the horrible economic environment, coupled with a government which hasn't as yet shown that it is willing to spur, in any significant way, the critically needed business demand growth. When business demand returns and small business financial prospects look much better, these prudent banks will then open up their small business financing spigots.
One thing is for certain. The longer real private sector job creation is put off, the worst the structural recession will get. First, the average time the unemployed will be out of work will increase and the harder it will be that the skills of these long-term unemployed will be desired by companies. And second, the high number of unemployed and underemployed substantially increase, on a continuing basis, the US federal deficit, as well as also putting State Government finances under severe pressure.
The structural recession has been caused by the 2000s Lost Decade. It’s mainly the massive offshoring of jobs overseas by multinational corps, with the resultant catastrophic effect on the US federal deficit, on US full-time employment, especially at livable wages, on US States financial coffers, and also on US real GDP percentage growth (averaging a dismal 1.9% annually in the 2000s Lost Decade vs. a very stable and substantially higher average of 3.1% to 3.3% annually in the three preceding decades). And this huge economic drop down in the 2000s Lost Decade occurred mostly in a laissez-faire US government environment, and thus with no government oversight.
The massively detrimental US federal deficit impact as well as the US states severe financial pressure here result from the monstrously lower corporate income tax receipts and the gargantuan employment individual income tax receipts lost and the related gargantuan payroll tax receipts lost, due to moving these jobs overseas.
And then there are several other primary reasons for this structural recession caused by the 2000s Lost Decade.
First, health care costs increased dramatically to both US businesses and to US individuals in the 2000s. And the three health care industries causing this massive cost increase (i.e. Big Non-profit Hospitals, Big Pharma and Big Health Insurance) all generated windfall profits in the laissez-faire 2000s Lost Decade.
Second, and in like manner, energy costs increased dramatically to both US businesses and to US individuals in the 2000s. And all of Big Oil, causing this massive cost increase, generated massive windfall profits in the laissez-faire 2000s Lost Decade.
Third, the substantial income tax cuts on the wealthy substantially increased the US federal deficit during the 2000s. Of special note here is the massive drop in US federal income tax receipts due to the monumental decrease in the dividend tax rate on individuals. There wasn’t much in the way of capital gains in the financially depressed 2000s decade, but there was still a gargantuan amount of cash dividends received, taxed at incredibly low tax rates.
Fourth, the US federal deficit ballooned in the 2000s from many unfunded spending initiatives, including unfunded spending on wars, the first TARP spending and the 2009 ARRA Economic Stimulus spending.
Anyway, given this structural deficit, how best to quickly jump-start real, sustainable private sector job creation?
Certainly, the business research tax credit is a winner. I think you’ll see some version of this pass shortly. What scares me is that Congress will just extend it exactly like it was in the past, where a good chunk of the future jobs created from it were overseas. Instead, it should be changed to make it fairer and much more of a US job creator, and at the same time, to provide disincentives for multinational corps to offshore jobs.
But what one, single bold job creation initiative is needed right away, which would be fairly simple to apply and also very effective? There have been many that I have proposed and that many others have proposed.
But the single one? OK, I think it’s clearly the Manufacturing Tax Credit. This Manufacturing Tax Credit would be computed as a pretty healthy percentage, perhaps at least 10%, of the purchase price of all three-year, five-year and seven-year MACRS tangible personal property placed in service. I am certain this one would really juice up the economy and job creation, and do so right away. And what really helps here is to also make all external computer software costs as well as all manufacturing plant facility costs eligible. I would make it a refundable Manufacturing Tax Credit. Also, for multinationals corps only, I would include a requirement for some form of simplified overall US payroll count increase to earn the Manufacturing Tax Credit, and then these payroll counts increases must continue in subsequent years or else the Manufacturing Tax Credit gets recaptured.
For maximum effect and fairness, I would enact the same Manufacturing Tax Credit percentage for businesses of all sizes. I’d make it eligible for all property placed in service, or for manufacturing plant facilities, committed to construct, from now to December 31, 2010.
It would be expensive, so how best to pay for it?
Well, the most dollars of tax benefit would go to large multinational corporations. This can be easily 100% paid for by the foreign earnings repatriation tax….a bit of sorely needed Backshoring. And these multinational corps would love to get their hands on some of their cash and cash investments locked away in tax havens like Ireland.....ouch, that European financial mess. I would grant a very healthy Dividend Received Deduction Percentage on the Foreign Earnings Repatriated used only to 100% fund this Manufacturing Tax Credit. And yeah, a multinational corp would be eligible for this Manufacturing Tax Credit only to the extent it is 100% funded by a like amount of its foreign earnings repatriation tax.
Then the larger problem….how to pay for this for pure domestic companies?
If multinational corps get their reported earnings negatively impacted by this funding, they’ll do everything they can to stop this Manufacturing Tax Credit for all companies. Unfortunately, that’s a fact of life. And they are so powerful.
Here’s a handful of funding sources that won’t negatively impact corporate earnings.
First, there's some automatic funding from the payroll count increase requirements for multinational corps. If they don't increase their US payroll counts, they won't initially earn this Manufacturing Tax Credit. And if they don't subsequently maintain these payroll count increases, this Manufacturing Tax Credit will be recaptured. On the other hand, if as expected, they do increase their payroll counts and continue them, there will be a huge pickup in US individual income taxes and payroll taxes from these US payroll adds. Thus, CBO favorable scoring has to be really helped by this payroll count requirement feature.
Second, there’s the partial deposits on open IRS tax audits. Corps already have an earnings charge on their books for this and thus there wouldn’t be any additional earnings charge to them.
Third, there’s the closing of the many tax loopholes of Big Oil, Big Health Insurance , Big Hospital, and Big Pharma. There is a long list of these. Since these industries all played a major role in creating the 2000s Lost Decade, in all fairness, they should all kick in to help solve the country’s economic mess it is now in. Since I am only targeting closing tax loopholes for a few industries here, only a very small set of corporations/organizations would have earnings hits here from this funding.
Fourth, there’s some of the uncommitted Economic Stimulus funds that I think can be much more effectively used for this highly-effective, quick-acting Manufacturing Tax Credit.
Fifth, in all fairness, individual dividends received should be taxed at ordinary tax rates. It's just not right for hard-working employees to get taxed at up to more than twice the income tax rate that cash dividend recipients are taxed at.
Sixth, the LIFO Inventory tax loophole could be closed for all companies above a certain size in all industries. There's no earnings hit here. Nearly all companies now using LIFO would switch their inventory accounting. And as an added benefit, the switch out of the unrealistic LIFO accounting will result in much stronger financial statements of these companies....much higher cumulative earnings and higher equity.
Seventh, and I really like this one, a refundable tax credit on Marketing, Selling and Advertising costs incurred from now until Dec 31, 2010. To make the Manufacturing Tax Credit really explosively effective to increase the desperately needed BUSINESS DEMAND, and the resultant job creation that flows from it, it will be really helpful if businesses doing the selling of this eligible property, and perhaps even for some or all other items they sell, can get a tax credit for marketing, selling and/or advertising these products. So where's the funding here? Well, I would give say a 5% tax credit for the Marketing, Selling and Advertising costs in the current year but then more than pay for it, over the next ten-year CBO scoring period, many times over by extending the life that all future Marketing/Selling/Advertising costs are to be deducted over to say one year, 18 months or even two years. I wouldn't start extending the life until after the country is completely out of this horrible structural recession...thus start scaling it in after say three years. The positive CBO scoring on this should be just huge. And businesses would get a very nice bump up of their reported GAAP earnings from just this, since the tax credit increases reported GAAP earnings but the life extension is treated as a temporary tax difference. And from a fairness standpoint, many Marketing, Selling and Advertising costs incurred are in essence Investments, benefiting businesses for many years.
The really cool part about the tax credit on Marketing, Selling and Advertising costs is that there are infinite ways to very easily fine tune them to get the desired result. For instance, if you wanted to reduce its CBO cost, you could just allow a tax credit on Marketing, Selling and Advertising Costs over and above some base period amounts, like the way the R&D tax credit works, and then you would also have the flexibility to significantly increase the percentage tax credit. Also, if you wanted to increase the CBO favorable scoring, choosing a two-year life for amortizing these costs for federal income tax purposes would give you a monumentally higher more favorable CBO scoring than choosing a one-year life. Another way to reduce the CBO cost here is to allow, or perhaps even require, multinational corps to use their foreign earnings repatriation tax, with a related incentivized favorable dividend received deduction percentage, to be 100% funded by a like amount of tax credit for their Marketing, Selling and Advertising costs incurred.
Eighth, perhaps some combination of the above seven.
Further, I would even consider combining some form of bonus tax depreciation on the same property getting this new manufacturing tax credit. This can easily be designed to have no ten-year CBO scored cost. I would place some payroll count increase requirements on multinational corps for this bonus tax depreciation too, though.
I think the severely stressed State government financial coffers will be helped monumentally in the near term by the above proposals. First, the large taxable dividend from foreign earnings repatriation will substantially increase state business taxable income of multinational corps. Second, if the States are wise enough to pass legislation to include both the Manufacturing Tax Credit and the Marketing Tax Credit in business taxable income, business taxable income will be substantially further increased. Third, States should not allow the bonus tax depreciation. Fourth, state taxable income should increase markedly from the incentives here to increase sales and thus profits of all businesses. And fifth, payroll counts will increase and thus States will see much higher individual income taxes. And then in the far term, states will significantly benefit from the life extension on the Marketing costs.
An update of this post can be seen at the below link.
Let Gulf Oil Spill Spark a Bold US Job Creating Economic Recovery
http://www.evansvilleforchange.com/?p=1928
Let me explain why I think the Economic Stimulus, although very well intentioned, hasn’t been very effective in reducing the unemployment/underemployment rates. In doing so, let me use an analogy from the recent BP oil spill in the Gulf of Mexico.
When you have oil all throughout the Gulf, and you try to get rid of it “One Scoop at a Time”, you have no success, especially when more oil keeps spilling out in the Gulf.
So much of the Economic Stimulus was designed the same way……”One Project at a Time”. On so many of the projects, the government, being fair, thorough and transparent, takes quite a long time to review each proposal and then decides which company, organization or individual best deserves the government money incentives. This is crazily inefficient…..probably designed by academic economists and/or government bureaucrats, without the requisite business acumen. And just like more oil continuing to be spilled in the Gulf, the unemployed and underemployed rolls, as well as the lower wage full-time jobs, keep expanding from US jobs continuing to be transferred overseas, from US jobs cut due to US company productivity initiatives, and from the many newly-minted college graduates, high school graduates and high school and college dropouts.
Instead, I think what should have happened was for the US government to creatively design US government desirable tax incentives for businesses to execute. Thus, you would be unleashing the creativity of all of businesses, right away, to solve the deep, structural US economic problem. And can businesses ever quickly respond to something like this…..the key salient point to understand is that businesses are driven to action by reported earnings. You give them an incentive to increase their earnings, they’ll go after it quickly and intensely.
Why is this a structural recession rather than a typical cyclical recession?
So many pundits think that if you solve the financial markets and the housing regulatory problems, the jobless problem will later go away in a reasonable amount of time. This is crazy reasoning. You fix the regs, you still don't have business demand.
Many of these same pundits also think the major problem causing joblessness is that there is no lending to small businesses. However, the major problem in reality is the lack of demand for the products and services of the small businesses, caused by the horrible economic crater we are in. You really can't blame a prudent bank for not lending to a small business, whose financial statements are not sufficiently solid, and more importantly, whose future cash flows are now even more uncertain given the horrible economic environment, coupled with a government which hasn't as yet shown that it is willing to spur, in any significant way, the critically needed business demand growth. When business demand returns and small business financial prospects look much better, these prudent banks will then open up their small business financing spigots.
One thing is for certain. The longer real private sector job creation is put off, the worst the structural recession will get. First, the average time the unemployed will be out of work will increase and the harder it will be that the skills of these long-term unemployed will be desired by companies. And second, the high number of unemployed and underemployed substantially increase, on a continuing basis, the US federal deficit, as well as also putting State Government finances under severe pressure.
The structural recession has been caused by the 2000s Lost Decade. It’s mainly the massive offshoring of jobs overseas by multinational corps, with the resultant catastrophic effect on the US federal deficit, on US full-time employment, especially at livable wages, on US States financial coffers, and also on US real GDP percentage growth (averaging a dismal 1.9% annually in the 2000s Lost Decade vs. a very stable and substantially higher average of 3.1% to 3.3% annually in the three preceding decades). And this huge economic drop down in the 2000s Lost Decade occurred mostly in a laissez-faire US government environment, and thus with no government oversight.
The massively detrimental US federal deficit impact as well as the US states severe financial pressure here result from the monstrously lower corporate income tax receipts and the gargantuan employment individual income tax receipts lost and the related gargantuan payroll tax receipts lost, due to moving these jobs overseas.
And then there are several other primary reasons for this structural recession caused by the 2000s Lost Decade.
First, health care costs increased dramatically to both US businesses and to US individuals in the 2000s. And the three health care industries causing this massive cost increase (i.e. Big Non-profit Hospitals, Big Pharma and Big Health Insurance) all generated windfall profits in the laissez-faire 2000s Lost Decade.
Second, and in like manner, energy costs increased dramatically to both US businesses and to US individuals in the 2000s. And all of Big Oil, causing this massive cost increase, generated massive windfall profits in the laissez-faire 2000s Lost Decade.
Third, the substantial income tax cuts on the wealthy substantially increased the US federal deficit during the 2000s. Of special note here is the massive drop in US federal income tax receipts due to the monumental decrease in the dividend tax rate on individuals. There wasn’t much in the way of capital gains in the financially depressed 2000s decade, but there was still a gargantuan amount of cash dividends received, taxed at incredibly low tax rates.
Fourth, the US federal deficit ballooned in the 2000s from many unfunded spending initiatives, including unfunded spending on wars, the first TARP spending and the 2009 ARRA Economic Stimulus spending.
Anyway, given this structural deficit, how best to quickly jump-start real, sustainable private sector job creation?
Certainly, the business research tax credit is a winner. I think you’ll see some version of this pass shortly. What scares me is that Congress will just extend it exactly like it was in the past, where a good chunk of the future jobs created from it were overseas. Instead, it should be changed to make it fairer and much more of a US job creator, and at the same time, to provide disincentives for multinational corps to offshore jobs.
But what one, single bold job creation initiative is needed right away, which would be fairly simple to apply and also very effective? There have been many that I have proposed and that many others have proposed.
But the single one? OK, I think it’s clearly the Manufacturing Tax Credit. This Manufacturing Tax Credit would be computed as a pretty healthy percentage, perhaps at least 10%, of the purchase price of all three-year, five-year and seven-year MACRS tangible personal property placed in service. I am certain this one would really juice up the economy and job creation, and do so right away. And what really helps here is to also make all external computer software costs as well as all manufacturing plant facility costs eligible. I would make it a refundable Manufacturing Tax Credit. Also, for multinationals corps only, I would include a requirement for some form of simplified overall US payroll count increase to earn the Manufacturing Tax Credit, and then these payroll counts increases must continue in subsequent years or else the Manufacturing Tax Credit gets recaptured.
For maximum effect and fairness, I would enact the same Manufacturing Tax Credit percentage for businesses of all sizes. I’d make it eligible for all property placed in service, or for manufacturing plant facilities, committed to construct, from now to December 31, 2010.
It would be expensive, so how best to pay for it?
Well, the most dollars of tax benefit would go to large multinational corporations. This can be easily 100% paid for by the foreign earnings repatriation tax….a bit of sorely needed Backshoring. And these multinational corps would love to get their hands on some of their cash and cash investments locked away in tax havens like Ireland.....ouch, that European financial mess. I would grant a very healthy Dividend Received Deduction Percentage on the Foreign Earnings Repatriated used only to 100% fund this Manufacturing Tax Credit. And yeah, a multinational corp would be eligible for this Manufacturing Tax Credit only to the extent it is 100% funded by a like amount of its foreign earnings repatriation tax.
Then the larger problem….how to pay for this for pure domestic companies?
If multinational corps get their reported earnings negatively impacted by this funding, they’ll do everything they can to stop this Manufacturing Tax Credit for all companies. Unfortunately, that’s a fact of life. And they are so powerful.
Here’s a handful of funding sources that won’t negatively impact corporate earnings.
First, there's some automatic funding from the payroll count increase requirements for multinational corps. If they don't increase their US payroll counts, they won't initially earn this Manufacturing Tax Credit. And if they don't subsequently maintain these payroll count increases, this Manufacturing Tax Credit will be recaptured. On the other hand, if as expected, they do increase their payroll counts and continue them, there will be a huge pickup in US individual income taxes and payroll taxes from these US payroll adds. Thus, CBO favorable scoring has to be really helped by this payroll count requirement feature.
Second, there’s the partial deposits on open IRS tax audits. Corps already have an earnings charge on their books for this and thus there wouldn’t be any additional earnings charge to them.
Third, there’s the closing of the many tax loopholes of Big Oil, Big Health Insurance , Big Hospital, and Big Pharma. There is a long list of these. Since these industries all played a major role in creating the 2000s Lost Decade, in all fairness, they should all kick in to help solve the country’s economic mess it is now in. Since I am only targeting closing tax loopholes for a few industries here, only a very small set of corporations/organizations would have earnings hits here from this funding.
Fourth, there’s some of the uncommitted Economic Stimulus funds that I think can be much more effectively used for this highly-effective, quick-acting Manufacturing Tax Credit.
Fifth, in all fairness, individual dividends received should be taxed at ordinary tax rates. It's just not right for hard-working employees to get taxed at up to more than twice the income tax rate that cash dividend recipients are taxed at.
Sixth, the LIFO Inventory tax loophole could be closed for all companies above a certain size in all industries. There's no earnings hit here. Nearly all companies now using LIFO would switch their inventory accounting. And as an added benefit, the switch out of the unrealistic LIFO accounting will result in much stronger financial statements of these companies....much higher cumulative earnings and higher equity.
Seventh, and I really like this one, a refundable tax credit on Marketing, Selling and Advertising costs incurred from now until Dec 31, 2010. To make the Manufacturing Tax Credit really explosively effective to increase the desperately needed BUSINESS DEMAND, and the resultant job creation that flows from it, it will be really helpful if businesses doing the selling of this eligible property, and perhaps even for some or all other items they sell, can get a tax credit for marketing, selling and/or advertising these products. So where's the funding here? Well, I would give say a 5% tax credit for the Marketing, Selling and Advertising costs in the current year but then more than pay for it, over the next ten-year CBO scoring period, many times over by extending the life that all future Marketing/Selling/Advertising costs are to be deducted over to say one year, 18 months or even two years. I wouldn't start extending the life until after the country is completely out of this horrible structural recession...thus start scaling it in after say three years. The positive CBO scoring on this should be just huge. And businesses would get a very nice bump up of their reported GAAP earnings from just this, since the tax credit increases reported GAAP earnings but the life extension is treated as a temporary tax difference. And from a fairness standpoint, many Marketing, Selling and Advertising costs incurred are in essence Investments, benefiting businesses for many years.
The really cool part about the tax credit on Marketing, Selling and Advertising costs is that there are infinite ways to very easily fine tune them to get the desired result. For instance, if you wanted to reduce its CBO cost, you could just allow a tax credit on Marketing, Selling and Advertising Costs over and above some base period amounts, like the way the R&D tax credit works, and then you would also have the flexibility to significantly increase the percentage tax credit. Also, if you wanted to increase the CBO favorable scoring, choosing a two-year life for amortizing these costs for federal income tax purposes would give you a monumentally higher more favorable CBO scoring than choosing a one-year life. Another way to reduce the CBO cost here is to allow, or perhaps even require, multinational corps to use their foreign earnings repatriation tax, with a related incentivized favorable dividend received deduction percentage, to be 100% funded by a like amount of tax credit for their Marketing, Selling and Advertising costs incurred.
Eighth, perhaps some combination of the above seven.
Further, I would even consider combining some form of bonus tax depreciation on the same property getting this new manufacturing tax credit. This can easily be designed to have no ten-year CBO scored cost. I would place some payroll count increase requirements on multinational corps for this bonus tax depreciation too, though.
I think the severely stressed State government financial coffers will be helped monumentally in the near term by the above proposals. First, the large taxable dividend from foreign earnings repatriation will substantially increase state business taxable income of multinational corps. Second, if the States are wise enough to pass legislation to include both the Manufacturing Tax Credit and the Marketing Tax Credit in business taxable income, business taxable income will be substantially further increased. Third, States should not allow the bonus tax depreciation. Fourth, state taxable income should increase markedly from the incentives here to increase sales and thus profits of all businesses. And fifth, payroll counts will increase and thus States will see much higher individual income taxes. And then in the far term, states will significantly benefit from the life extension on the Marketing costs.
An update of this post can be seen at the below link.
Let Gulf Oil Spill Spark a Bold US Job Creating Economic Recovery
http://www.evansvilleforchange.com/?p=1928
Friday, May 28, 2010
Entire Oil Industry Gushed Windfall Profits in the Bush/Cheney Years
Here are some key financial specifics of just what was going on with Big Oil during the Bush/Cheney years (2001-2008).
Globally, in Fortune’s ranking of the world’s largest companies, the top six earners in 2008 were all oil companies:
1. Exxon Mobil (US)…....$45.2 bil
2. Gazprom (Russia)…....$29.9 bil
3. Royal Dutch Shell…....$26.3 bil
4. Chevron (US)……….....$23.9 bil
5. BP (UK)……………........$21.2 bil
6. Petrobras (Brazil)…….$18.9 bil
And then, US-owned ConocoPhillips registered core 2008 earnings, exclusive of one-time asset write-downs, of $16.4 bil, which would have placed them 10th on the above list.
So just who were the companies ranked 7th through 9th? Would you believe Microsoft ($17.7 bil), GE ($17.4 bil) and foreign-owned Nestle ($16.9 bil)? This just reveals the extent to which Very Big Oil dominated the world economically by the end of the Bush/Cheney presidency.
How has this changed from the start of the 2000 decade, before the Bush/Cheney years? Well, dramatically.
In Fortune's 2000 ranking for largest companies just in the US in 1999, Exxon Mobil had $7.9 bil of earnings (ranked just 4th) and Chevron ranked just 48th. Also, neither Conoco nor Phillips Petroleum was in the top 100.
On the other hand, in this Fortune 2000 ranking, GE (ranked 1st in the US) had earnings of $10.7 bil in 1999 and Microsoft had earnings of $7.8 bil.
Now let me get really specific here. I’m focusing here on profit improvement from the last two Clinton/Gore Presidential years (1999 and 2000) to the last two Bush/Cheney Presidential years (2007 and 2008).
As a point of reference, I’ll start with the largest, very best Dow Industrial non-energy companies, which generated total earnings in the last two Bush/Cheney years of in excess of $10 bil. As you can see, these 16 superb companies performed very well in the financially depressed Bush/Cheney years.
Largest Growth Dow Industrials (16)
..........................Net Income from Continuing Operations
.....................................................................2007-2008
..........................................................................Over
.............................Two Years....Two Years....1999-2000
............................2007-2008...1999-2000...% Increase
.............................(in millions of dollars).......(Decrease)
Intel.........................12,268........17,849............-31%
Merck.......................11,083........12,713............-13%
Verizon Comm..........23,146........19,106.............21%
Bank of America.......18,990........15,399.............23%
IBM.........................22,752........15,805.............44%
JP Morgan Chase.....19,064........13,228.............44%
ATT (SBC)................24,818........14,540.............71%
GE...........................42,103........23,452.............80%
Microsoft................31,746........17,206..............85%
Pfizer......................16,248..........8,690..............87%
Walmart..................27,022........12,169.............122%
Hewlett Packard......15,593..........6,665.............134%
JNJ.........................23,525..........9,226.............155%
Coca Cola................11,788..........4,608.............156%
Procter & Gamble....21,861..........7,305.............199%
Cisco Systems.........15,385..........4,691.............228%
Total.....................337,392......202,652............66%
In comparison, below here are the comparable profit numbers for US Very Big Oil plus BP, which has huge operations in the US. Clearly, in the Bush/Cheney years, US Very Big Oil substantially outperformed the above very best large non-energy Dow companies (total earnings growth of an incredible 289% vs. 66%). Whoa, did Big Oil ever dominate economically by the end of the Bush/Cheney term. Instead of being Too Big to Fail, they are now Too Big to Listen to Anyone.
Very Big Oil Companies (4)
........................Net Income from Continuing Operations
...................................................................2007-2008
........................................................................Over
...........................Two Years....Two Years....1999-2000
..........................2007-2008...1999-2000...% Increase
...........................(in millions of dollars)......(Decrease)......HQs
BP.........................42,835........14,779..........190%.....London
Exxon Mobil..........85,830........23,900........259%.....Houston
Chevron................42,619.........10,974.........288%...San Francisco
ConocoPhillips.......31,584*.........2,452.......1,188%....Houston
Total....................202,868.........52,105.........289%
* exclusive of one-time asset writedowns
But the above earnings growth numbers are just a drop in the bucket as compared to the nosebleed earnings growth during the Bush/Cheney years of the 20 Other Big Oil companies, which each had total earnings for 2007 and 2008 combined of greater than $2 bil. The total earnings growth of these 20 Other Big Oil companies was an off-the-charts 733% in the Bush/Cheney years, as compared with 289% for the 4 Very Big Oil companies and with 66% for the best very large non-energy Dow Industrial companies.
As you review these incredible numbers below, it is quite clear that something obscene happened here that had no business of happening. While the country, US businesses and US citizens suffered severely during the Bush/Cheney years, the entire Big Oil industry rocked, dancing the Houston Hustle, and clearly at the expense of everyone else. This just wasn't right and, in all fairness, needs to be both immediately and dramatically corrected.
Other Big Oil Companies (20)
..........................Net Income from Continuing Operations
...................................................................2007-2008
........................................................................Over
.............................Two Years..Two Years...1999-2000
.............................2007-08...1999-2000...% Increase
..............................(in millions of dollars)...(Decrease)...HQs
Hess...........................4,192.......1,461.........187%....New York
EOG Resources...........3,527.........966..........265%....Houston
Apache.......................3,524.........922..........282%....Houston
Occidental Petroleum12,108......2,137.........467%....Los Angeles
Murphy Oil..................2,484.........426..........483%....Arkansas
Marathon Oil...............7,150.......1,066..........571%....Houston
Anadarko Petroleum...6,987.........867...........706%....Houston
Diamond Offshore........2,155.........228..........845%....Houston
Noble Energy..............2,294.........241...........852%....Houston
Valero Energy.............3,365.........353...........853%....San Antonio
Schlumberger........10,599......1,064..........896%....Houston*
Noble Corp.................2,767.........250..........1,007%....Houston**
Halliburton.............5,178.........362.........1,330%....Houston
XTO Energy................3,603..........164..........2,097%....Fort Worth
Baker Hughes.............3,149..........135..........2,233%....Houston
Ensco Intl...................2,130...........85.........2,406%Dallas/London
Transocean.............7,333.........165.........4,344%.Houston**
Weatherford................2,552.........(23).......11,196%....Houston***
Chesapeake Energy.....2,059.........(11)........18,818%Oklahoma City
Natl Oilwell Varco........3,289............4.........82,125%....Houston
Total.........................90,445....10,862.............733%
* also The Netherlands
** also Cayman Islands and Switzerland
*** also Switzerland
Yeah, that is correct…..these above 20 Other Big Oil companies had total earnings growth in the last two Bush/Cheney years over the last two Clinton/Gore years which was more than tenfold the growth of the very best non-energy Dow Industrial companies over the same period. Further, the four very Big Oil companies earnings growth in 2007 and 2008 over 1999 and 2000 was 4.4 times larger than the earnings growth of the very best non-energy Dow Industrial companies over the same period.
And all of this Big Oil windfall profit gushing in the Bush/Cheney Presidential years occurred while these same Big Oil companies were granted incredibly lucrative tax loopholes by the US government. Further, the US government, instead of regulating these Big Oil companies, decided to grease the skids for these Big Oil companies, with the result being that they all generated windfall profits during the Bush/Cheney Presidential years.
I think this is the Presidential legacy of the Bush/Cheney years. All of Big Oil rocked, proudly dancing the Houston Hustle in the 2000s Lost Decade, while the country, so many domestic businesses, and so many US citizens severely suffered. And I also think the above very robust Big Oil numbers reveal why most of Big Oil, and its many US Congressional supporters, are not willing to help the current Obama Administration in its intense effort to get the country out of its massive economic hole. In fact, many of them are doing everything in their power to see to it that the Obama Administration fails. What an absolutely disgusting strategy.
The Houston Hustle started in the 2000s Lost Decade with Enron, continued unabated throughout the entire span of the Bush/Cheney Presidential years with the nosebleed, windfall profits of the entire Big Oil Industry, and still continues today in the Halls of the US Congress....it's time to vote all of these US Congressional shills of Big Oil out of office in November 2010. They are wrecking the country economically.
Now let me spend some time on these Big Oil tax loopholes.
My understanding is that the Obama Administration would like to eliminate LIFO (last-in, first-out) inventory for tax purposes for Big Oil and for the Big Oil related industries. Companies experiencing increasing prices of their inventories over the years have been the major beneficiaries of LIFO. Thus, with the dramatic increase in oil prices, US Big Oil has been a huge winner with LIFO. But LIFO is an unrealistic financial boondoggle and has resulted in US Big Oil companies having their inventory costed on their balance sheets at prices of decades ago. And then on the flipside of the coin, this LIFO approach results in US Big Oil receiving substantial Cost of Goods Sold tax deductions based on the most recent, usually very steep oil prices prevailing when the goods are sold.
Just how large is this LIFO inventory tax loophole for Oil companies? Well, Exxon Mobil stated its Oil Inventories on its 2009 year-end balance sheet at $8.7 bil. If instead, these Oil Inventories were stated at the more realistic current cost, the amount reported would have been $25.8 bil…yeah, that’s triple the amount actually recorded. And the US FASB, unlike most of the rest of the world, even permits this. Also, the IRS LIFO conformity rule permits US companies to use LIFO for tax purposes only if they also use it for financial statement purposes….what an absolute mess.
And then a second tax loophole that US Big Oil has benefited from over the years is Percentage Depletion on the amounts spent on natural resources, such as oil under the ground. In a non-lose financial situation, each year the oil company computes depletion under both the cost method, similar to how units-of-production depreciation is computed, and also under the percentage method, based on a percentage of gross income from the property. Then the oil company is able to deduct each year the higher of the two numbers. End result, over the life of the natural resource, the total tax depletion deduction can and has far exceeded the total cost of the natural resource. That's incredible.....they are able to deduct much more than they have actually spent.
Intangible drilling costs (Ouch! that reminds me of BP and Transocean) are the exploration and development costs related to oil wells. A third tax loophole for US Big Oil is that all of these costs can be immediately deducted, instead of more realistically being written off over the useful life of the property.
Thus by closing oil company tax loopholes, like these three, Big Oil is not being penalized. Instead, all that is happening is that a financial boondoggle is being eliminated that shouldn’t have been there in the first place.
Further, I don’t think Big Oil has any business being eligible for the very lucrative Domestic Production Activity Deduction for federal income tax purposes. With its severely high energy costs placed on other domestic businesses, Big Oil was able to reduce its US income taxes by maximizing its own Domestic Production Activity Deduction. At the same time, such Big Oil high energy pricing action reduced the tax benefit other domestic businesses received from the Domestic Production Activity Deduction.
The responsible thing to do would be to close all of Big Oil’s tax loopholes and use the proceeds to fund desperately needed real US long-term private sector job creation and to also help fund a very robust permanent business research tax credit, with a clearly green emphasis. US citizens are shouting out for the Big Oil supporters in the US Congress to stop their obstructionist behavior and work with the Obama Administration to help get the country out of its deep economic hole.
Globally, in Fortune’s ranking of the world’s largest companies, the top six earners in 2008 were all oil companies:
1. Exxon Mobil (US)…....$45.2 bil
2. Gazprom (Russia)…....$29.9 bil
3. Royal Dutch Shell…....$26.3 bil
4. Chevron (US)……….....$23.9 bil
5. BP (UK)……………........$21.2 bil
6. Petrobras (Brazil)…….$18.9 bil
And then, US-owned ConocoPhillips registered core 2008 earnings, exclusive of one-time asset write-downs, of $16.4 bil, which would have placed them 10th on the above list.
So just who were the companies ranked 7th through 9th? Would you believe Microsoft ($17.7 bil), GE ($17.4 bil) and foreign-owned Nestle ($16.9 bil)? This just reveals the extent to which Very Big Oil dominated the world economically by the end of the Bush/Cheney presidency.
How has this changed from the start of the 2000 decade, before the Bush/Cheney years? Well, dramatically.
In Fortune's 2000 ranking for largest companies just in the US in 1999, Exxon Mobil had $7.9 bil of earnings (ranked just 4th) and Chevron ranked just 48th. Also, neither Conoco nor Phillips Petroleum was in the top 100.
On the other hand, in this Fortune 2000 ranking, GE (ranked 1st in the US) had earnings of $10.7 bil in 1999 and Microsoft had earnings of $7.8 bil.
Now let me get really specific here. I’m focusing here on profit improvement from the last two Clinton/Gore Presidential years (1999 and 2000) to the last two Bush/Cheney Presidential years (2007 and 2008).
As a point of reference, I’ll start with the largest, very best Dow Industrial non-energy companies, which generated total earnings in the last two Bush/Cheney years of in excess of $10 bil. As you can see, these 16 superb companies performed very well in the financially depressed Bush/Cheney years.
Largest Growth Dow Industrials (16)
..........................Net Income from Continuing Operations
.....................................................................2007-2008
..........................................................................Over
.............................Two Years....Two Years....1999-2000
............................2007-2008...1999-2000...% Increase
.............................(in millions of dollars).......(Decrease)
Intel.........................12,268........17,849............-31%
Merck.......................11,083........12,713............-13%
Verizon Comm..........23,146........19,106.............21%
Bank of America.......18,990........15,399.............23%
IBM.........................22,752........15,805.............44%
JP Morgan Chase.....19,064........13,228.............44%
ATT (SBC)................24,818........14,540.............71%
GE...........................42,103........23,452.............80%
Microsoft................31,746........17,206..............85%
Pfizer......................16,248..........8,690..............87%
Walmart..................27,022........12,169.............122%
Hewlett Packard......15,593..........6,665.............134%
JNJ.........................23,525..........9,226.............155%
Coca Cola................11,788..........4,608.............156%
Procter & Gamble....21,861..........7,305.............199%
Cisco Systems.........15,385..........4,691.............228%
Total.....................337,392......202,652............66%
In comparison, below here are the comparable profit numbers for US Very Big Oil plus BP, which has huge operations in the US. Clearly, in the Bush/Cheney years, US Very Big Oil substantially outperformed the above very best large non-energy Dow companies (total earnings growth of an incredible 289% vs. 66%). Whoa, did Big Oil ever dominate economically by the end of the Bush/Cheney term. Instead of being Too Big to Fail, they are now Too Big to Listen to Anyone.
Very Big Oil Companies (4)
........................Net Income from Continuing Operations
...................................................................2007-2008
........................................................................Over
...........................Two Years....Two Years....1999-2000
..........................2007-2008...1999-2000...% Increase
...........................(in millions of dollars)......(Decrease)......HQs
BP.........................42,835........14,779..........190%.....London
Exxon Mobil..........85,830........23,900........259%.....Houston
Chevron................42,619.........10,974.........288%...San Francisco
ConocoPhillips.......31,584*.........2,452.......1,188%....Houston
Total....................202,868.........52,105.........289%
* exclusive of one-time asset writedowns
But the above earnings growth numbers are just a drop in the bucket as compared to the nosebleed earnings growth during the Bush/Cheney years of the 20 Other Big Oil companies, which each had total earnings for 2007 and 2008 combined of greater than $2 bil. The total earnings growth of these 20 Other Big Oil companies was an off-the-charts 733% in the Bush/Cheney years, as compared with 289% for the 4 Very Big Oil companies and with 66% for the best very large non-energy Dow Industrial companies.
As you review these incredible numbers below, it is quite clear that something obscene happened here that had no business of happening. While the country, US businesses and US citizens suffered severely during the Bush/Cheney years, the entire Big Oil industry rocked, dancing the Houston Hustle, and clearly at the expense of everyone else. This just wasn't right and, in all fairness, needs to be both immediately and dramatically corrected.
Other Big Oil Companies (20)
..........................Net Income from Continuing Operations
...................................................................2007-2008
........................................................................Over
.............................Two Years..Two Years...1999-2000
.............................2007-08...1999-2000...% Increase
..............................(in millions of dollars)...(Decrease)...HQs
Hess...........................4,192.......1,461.........187%....New York
EOG Resources...........3,527.........966..........265%....Houston
Apache.......................3,524.........922..........282%....Houston
Occidental Petroleum12,108......2,137.........467%....Los Angeles
Murphy Oil..................2,484.........426..........483%....Arkansas
Marathon Oil...............7,150.......1,066..........571%....Houston
Anadarko Petroleum...6,987.........867...........706%....Houston
Diamond Offshore........2,155.........228..........845%....Houston
Noble Energy..............2,294.........241...........852%....Houston
Valero Energy.............3,365.........353...........853%....San Antonio
Schlumberger........10,599......1,064..........896%....Houston*
Noble Corp.................2,767.........250..........1,007%....Houston**
Halliburton.............5,178.........362.........1,330%....Houston
XTO Energy................3,603..........164..........2,097%....Fort Worth
Baker Hughes.............3,149..........135..........2,233%....Houston
Ensco Intl...................2,130...........85.........2,406%Dallas/London
Transocean.............7,333.........165.........4,344%.Houston**
Weatherford................2,552.........(23).......11,196%....Houston***
Chesapeake Energy.....2,059.........(11)........18,818%Oklahoma City
Natl Oilwell Varco........3,289............4.........82,125%....Houston
Total.........................90,445....10,862.............733%
* also The Netherlands
** also Cayman Islands and Switzerland
*** also Switzerland
Yeah, that is correct…..these above 20 Other Big Oil companies had total earnings growth in the last two Bush/Cheney years over the last two Clinton/Gore years which was more than tenfold the growth of the very best non-energy Dow Industrial companies over the same period. Further, the four very Big Oil companies earnings growth in 2007 and 2008 over 1999 and 2000 was 4.4 times larger than the earnings growth of the very best non-energy Dow Industrial companies over the same period.
And all of this Big Oil windfall profit gushing in the Bush/Cheney Presidential years occurred while these same Big Oil companies were granted incredibly lucrative tax loopholes by the US government. Further, the US government, instead of regulating these Big Oil companies, decided to grease the skids for these Big Oil companies, with the result being that they all generated windfall profits during the Bush/Cheney Presidential years.
I think this is the Presidential legacy of the Bush/Cheney years. All of Big Oil rocked, proudly dancing the Houston Hustle in the 2000s Lost Decade, while the country, so many domestic businesses, and so many US citizens severely suffered. And I also think the above very robust Big Oil numbers reveal why most of Big Oil, and its many US Congressional supporters, are not willing to help the current Obama Administration in its intense effort to get the country out of its massive economic hole. In fact, many of them are doing everything in their power to see to it that the Obama Administration fails. What an absolutely disgusting strategy.
The Houston Hustle started in the 2000s Lost Decade with Enron, continued unabated throughout the entire span of the Bush/Cheney Presidential years with the nosebleed, windfall profits of the entire Big Oil Industry, and still continues today in the Halls of the US Congress....it's time to vote all of these US Congressional shills of Big Oil out of office in November 2010. They are wrecking the country economically.
Now let me spend some time on these Big Oil tax loopholes.
My understanding is that the Obama Administration would like to eliminate LIFO (last-in, first-out) inventory for tax purposes for Big Oil and for the Big Oil related industries. Companies experiencing increasing prices of their inventories over the years have been the major beneficiaries of LIFO. Thus, with the dramatic increase in oil prices, US Big Oil has been a huge winner with LIFO. But LIFO is an unrealistic financial boondoggle and has resulted in US Big Oil companies having their inventory costed on their balance sheets at prices of decades ago. And then on the flipside of the coin, this LIFO approach results in US Big Oil receiving substantial Cost of Goods Sold tax deductions based on the most recent, usually very steep oil prices prevailing when the goods are sold.
Just how large is this LIFO inventory tax loophole for Oil companies? Well, Exxon Mobil stated its Oil Inventories on its 2009 year-end balance sheet at $8.7 bil. If instead, these Oil Inventories were stated at the more realistic current cost, the amount reported would have been $25.8 bil…yeah, that’s triple the amount actually recorded. And the US FASB, unlike most of the rest of the world, even permits this. Also, the IRS LIFO conformity rule permits US companies to use LIFO for tax purposes only if they also use it for financial statement purposes….what an absolute mess.
And then a second tax loophole that US Big Oil has benefited from over the years is Percentage Depletion on the amounts spent on natural resources, such as oil under the ground. In a non-lose financial situation, each year the oil company computes depletion under both the cost method, similar to how units-of-production depreciation is computed, and also under the percentage method, based on a percentage of gross income from the property. Then the oil company is able to deduct each year the higher of the two numbers. End result, over the life of the natural resource, the total tax depletion deduction can and has far exceeded the total cost of the natural resource. That's incredible.....they are able to deduct much more than they have actually spent.
Intangible drilling costs (Ouch! that reminds me of BP and Transocean) are the exploration and development costs related to oil wells. A third tax loophole for US Big Oil is that all of these costs can be immediately deducted, instead of more realistically being written off over the useful life of the property.
Thus by closing oil company tax loopholes, like these three, Big Oil is not being penalized. Instead, all that is happening is that a financial boondoggle is being eliminated that shouldn’t have been there in the first place.
Further, I don’t think Big Oil has any business being eligible for the very lucrative Domestic Production Activity Deduction for federal income tax purposes. With its severely high energy costs placed on other domestic businesses, Big Oil was able to reduce its US income taxes by maximizing its own Domestic Production Activity Deduction. At the same time, such Big Oil high energy pricing action reduced the tax benefit other domestic businesses received from the Domestic Production Activity Deduction.
The responsible thing to do would be to close all of Big Oil’s tax loopholes and use the proceeds to fund desperately needed real US long-term private sector job creation and to also help fund a very robust permanent business research tax credit, with a clearly green emphasis. US citizens are shouting out for the Big Oil supporters in the US Congress to stop their obstructionist behavior and work with the Obama Administration to help get the country out of its deep economic hole.
Monday, May 17, 2010
US Got Income Tax Slicked by Both US Big Oil and BP in the Lost 2000s Decade
When I do the math from segment and income tax footnotes for US Big Oil (Exxon Mobil, Chevron and ConocoPhillips), here are my results in total for the 2000s Lost Decade.
US Revenues of these three US Big Oil companies of $2.7 trillion for the 2000s decade, represented 43% of their Worldwide Revenues of $6.2 trillion. However, US Pretax Income for the same ten years was $224 billion, or an incredibly smaller 28% of Worldwide Pretax Income of $807 billion.
Then testing foreign-owned Big Oil, BP had US Revenues of $922 billion for the 2000s decade, which represented a huge 40% of BP’s Worldwide Revenues of $2.3 trillion. However, BP’s US Pretax Income before Interest for the 2000s decade was $76 billion, or also an incredibly smaller 30% of BP’s Worldwide Pretax Income before Interest of $250 billion.
Just looking at the most recent three years, these four Big Oil Companies had US Pretax Profits Mix, which were dramatically lower than their respective US Revenue mix, as follows:
2007 Second Last Bush/Cheney Year
Exxon Mobil………..19% US Profit Mix..........31% US Revenue Mix
BP…………………......19% US Profit Mix..........36% US Revenue Mix
Chevron……………..24% US Profit Mix..........44% US Revenue Mix
ConocoPhillips……60% US Profit Mix..........70% US Revenue Mix
2008 Last Bush/Cheney Year
Exxon Mobil………..12% US Profit Mix..........30% US Revenue Mix
BP…………………......26% US Profit Mix..........34% US Revenue Mix
Chevron……………..25% US Profit Mix..........44% US Revenue Mix
ConocoPhillips……46% US Profit Mix..........69% US Revenue Mix
The momentum of this trend carried over, and even significantly widened, in the first Obama presidential year of 2009:
Exxon Mobil………. 7% US Profit Mix..........30% US Revenue Mix
BP………………….....12% US Profit Mix..........35% US Revenue Mix
Chevron…………….. 7% US Profit Mix..........43% US Revenue Mix
ConcocoPhillips….24% US Profit Mix..........65% US Revenue Mix
And then for the entire 2000s Lost Decade
Exxon Mobil………. 22% US Profit Mix..........30% US Revenue Mix
BP…………………......30% US Profit Mix..........40% US Revenue Mix
Chevron……………..26% US Profit Mix..........45% US Revenue Mix
ConcocoPhillips…..49% US Profit Mix..........71% US Revenue Mix
I think these above numbers reveal that the US government did not get its fair share of income taxes from not only the three US Big Oil companies, but also from BP. And these are just Financial Statement Income numbers, which do include the effect of the LIFO Inventory tax loophole, since to use LIFO for tax, it also must be used for books. However, it doesn’t include the effect of the additional Big Oil very lucrative tax loopholes like percentage depletion, expensing intangible drilling costs and the benefit of the domestic production activity deduction.
Ignoring the effect of the latter three tax loopholes, which should be closed, if these four Big Oil companies generated US taxable income in total for the 2000s decade at the same percentage as their US Revenues represented of their Worldwide Revenues, then here are the related additional US taxable income computations for the Lost 2000s Decade:
Co.WW Pretax Income.X.(US Rev Mix–US Pretax Inc Mix)=Addtl US Taxable Income
Exxon Mobil…...$457 bil X (30% - 22%) = $36.6 bil
Chevron………....$211 bil X (45% - 26%) = $40.1 bil
ConocoPhillips..$139 bil X (71% - 49%) = $30.6 bil
BP…………….......$250 bil X (40% - 30%) = $25.0 bil
Total………......$1,057 bil……………….... = $132.3 bil
In addition, I think Royal Dutch Shell should follow a similar pattern. It didn’t disclose its segment profits by country, thus I can’t compute a similar impact. However, for just the last six years in total, its US Revenues were $535 bil, or 27% of its Worldwide Revenues of $2.0 trillion.
It seems to me that the above computations of additional US taxable income would be a good starting point to assess a fair windfall profits tax on all of Big Oil for the 2000s Lost Decade.
Also, for 2010 going forward, I think I would put in an additional US income tax each year for situations where a Big Oil company has a US Pretax Income Percentage Mix that is less than say 90% of its US Revenue Percentage Mix.
Further, I think it is only fair to also close the above four earlier mentioned Big Oil tax loopholes.
These Big Oil companies placed immense financial pressure in the 2000s Lost Decade on both US businesses and US individuals, while at the same time, they were generating nosebleed worldwide profits. Thus, I think it is only fair that they pay for some real very healthy US private sector job creation as well as providing funding for innovative very robust, permanent research tax credit, with a clear green emphasis....China is moving up much too quickly on the US competitive technological advantage here.
US Revenues of these three US Big Oil companies of $2.7 trillion for the 2000s decade, represented 43% of their Worldwide Revenues of $6.2 trillion. However, US Pretax Income for the same ten years was $224 billion, or an incredibly smaller 28% of Worldwide Pretax Income of $807 billion.
Then testing foreign-owned Big Oil, BP had US Revenues of $922 billion for the 2000s decade, which represented a huge 40% of BP’s Worldwide Revenues of $2.3 trillion. However, BP’s US Pretax Income before Interest for the 2000s decade was $76 billion, or also an incredibly smaller 30% of BP’s Worldwide Pretax Income before Interest of $250 billion.
Just looking at the most recent three years, these four Big Oil Companies had US Pretax Profits Mix, which were dramatically lower than their respective US Revenue mix, as follows:
2007 Second Last Bush/Cheney Year
Exxon Mobil………..19% US Profit Mix..........31% US Revenue Mix
BP…………………......19% US Profit Mix..........36% US Revenue Mix
Chevron……………..24% US Profit Mix..........44% US Revenue Mix
ConocoPhillips……60% US Profit Mix..........70% US Revenue Mix
2008 Last Bush/Cheney Year
Exxon Mobil………..12% US Profit Mix..........30% US Revenue Mix
BP…………………......26% US Profit Mix..........34% US Revenue Mix
Chevron……………..25% US Profit Mix..........44% US Revenue Mix
ConocoPhillips……46% US Profit Mix..........69% US Revenue Mix
The momentum of this trend carried over, and even significantly widened, in the first Obama presidential year of 2009:
Exxon Mobil………. 7% US Profit Mix..........30% US Revenue Mix
BP………………….....12% US Profit Mix..........35% US Revenue Mix
Chevron…………….. 7% US Profit Mix..........43% US Revenue Mix
ConcocoPhillips….24% US Profit Mix..........65% US Revenue Mix
And then for the entire 2000s Lost Decade
Exxon Mobil………. 22% US Profit Mix..........30% US Revenue Mix
BP…………………......30% US Profit Mix..........40% US Revenue Mix
Chevron……………..26% US Profit Mix..........45% US Revenue Mix
ConcocoPhillips…..49% US Profit Mix..........71% US Revenue Mix
I think these above numbers reveal that the US government did not get its fair share of income taxes from not only the three US Big Oil companies, but also from BP. And these are just Financial Statement Income numbers, which do include the effect of the LIFO Inventory tax loophole, since to use LIFO for tax, it also must be used for books. However, it doesn’t include the effect of the additional Big Oil very lucrative tax loopholes like percentage depletion, expensing intangible drilling costs and the benefit of the domestic production activity deduction.
Ignoring the effect of the latter three tax loopholes, which should be closed, if these four Big Oil companies generated US taxable income in total for the 2000s decade at the same percentage as their US Revenues represented of their Worldwide Revenues, then here are the related additional US taxable income computations for the Lost 2000s Decade:
Co.WW Pretax Income.X.(US Rev Mix–US Pretax Inc Mix)=Addtl US Taxable Income
Exxon Mobil…...$457 bil X (30% - 22%) = $36.6 bil
Chevron………....$211 bil X (45% - 26%) = $40.1 bil
ConocoPhillips..$139 bil X (71% - 49%) = $30.6 bil
BP…………….......$250 bil X (40% - 30%) = $25.0 bil
Total………......$1,057 bil……………….... = $132.3 bil
In addition, I think Royal Dutch Shell should follow a similar pattern. It didn’t disclose its segment profits by country, thus I can’t compute a similar impact. However, for just the last six years in total, its US Revenues were $535 bil, or 27% of its Worldwide Revenues of $2.0 trillion.
It seems to me that the above computations of additional US taxable income would be a good starting point to assess a fair windfall profits tax on all of Big Oil for the 2000s Lost Decade.
Also, for 2010 going forward, I think I would put in an additional US income tax each year for situations where a Big Oil company has a US Pretax Income Percentage Mix that is less than say 90% of its US Revenue Percentage Mix.
Further, I think it is only fair to also close the above four earlier mentioned Big Oil tax loopholes.
These Big Oil companies placed immense financial pressure in the 2000s Lost Decade on both US businesses and US individuals, while at the same time, they were generating nosebleed worldwide profits. Thus, I think it is only fair that they pay for some real very healthy US private sector job creation as well as providing funding for innovative very robust, permanent research tax credit, with a clear green emphasis....China is moving up much too quickly on the US competitive technological advantage here.
Tuesday, April 27, 2010
Job Creation Proposal #6: Three-Year and Enhanced Research Tax Credits
Presently, as one of many recurring annual US tax extenders, and the only one of these tax extenders that is a real job creator, businesses receive a tax credit for incremental research expenses incurred through the end of the current year. Generally, this tax credit is computed at 20% of the excess of qualified research expenses for the current year over a base period amount.
My proposal here is to step up this 20% to 40% for small US businesses in 2010, and from 20% to 30% for larger US businesses in 2010. Also, to give US businesses more certainty, the Research Tax Credit would be extended for two additional years, at 35% in 2011 and at 30% in 2012 for small US businesses, and at 25% in 2011 and at 20% in 2012 for larger businesses. Thus, my proposal will be a much more substantial US job creator than the previous annual tax extension approach. And with the way my proposal deals with US multinational corps creatively, and fairly, the total CBO scored cost of this three-year proposal should approximate the cost of the normal research tax credit one-year extension. How is that possible? Just read on.
Clearly, companies, and the US as a whole, receive major benefits from these US research expenditures. However, there is also a major drawback to the country. The majority of these US research tax credits are given to multinational corps who subsequently generate income overseas from the fruits of this US research. Thus the end result is that these multinational corps receive both US tax deductions and also US Research Tax Credits, even though much of the subsequent related taxable income is generated overseas and thus not taxed in the US. Also, the majority of the job creation of multinational corps from this US research is overseas. Let me explain in much more depth.
From income tax footnotes in their annual reports, of the present 30 Dow Industrial Stocks, there are 12 of them which either have minor research expenditures, such as Financial companies and Retailers, or which are predominately domestic companies.
Thus, here are the remaining present 18 Dow Industrial Stocks with significant overseas operations and also significant research expenditures. Also shown here are the total Pretax Operating Income earned outside the US (or Intl Operating Income) as well as the percentage these Intl Earnings, which were generated outside of the US (or Intl % Mix), comprised of the Worldwide Earnings of each of these 18 companies in total for the last 11 years….the last two Clinton/Gore years (1999 and 2000), all eight Bush/Cheney years (2001-2008), and the first year of Obama/Biden (2009).
……………………....Intl Income....Intl Mix
Exxon Mobil……….$363.8 bil……78%
Chevron…………….$160.1 bil……74%
GE………………….....$115.5 bil…….53%
Pfizer………………...$ 89.0 bil…….85%
IBM……………….....$ 68.1 bil…….49%
Microsoft…………..$ 62.4 bil…….37%
JNJ…………………...$ 60.2 bil…….48%
Merck………………..$ 55.2 bil…….57%
Hewlett-Packard… $ 50.0 bil…….90%
Coca Cola…….........$ 45.5 bil…….67%
Procter & Gamble…$ 41.4 bil…….39%
Cisco Systems………$ 36.4 bil…….56%
Intel…………………...$ 28.7 bil…….31%
United Technologies$ 25.4 bil…….54%
3M…………………......$ 21.4 bil…….47%
Kraft Foods…………..$ 15.1 bil…….35%
Caterpillar…………....$ 14.9 bil…….53%
DuPont……………......$ 14.0 bil…….45%
Total………………...$1,267 bil……60%
Yeah, that’s correct, a monstrous $1.3 trillion of overseas earnings for just these 18 Dow companies, which represents a massive 60% of their worldwide pretax operating earnings.
But even more important, check out the annual trend in the Total Intl Pretax Income Mix as a Percentage of Worldwide Pretax Income for these 18 huge Dow companies:
2009…..74%
2008…..71%
2007…..66%
2006…..62%
2005…..56%
2004…..58%
2003…..52%
2002…..55%
2001…..48%
2000…..46%
1999…..43%
Yeah, that’s a 31% Intl income mix growth in just the last decade (43% in Clinton’s 1999 to 74% in Obama’s 2009). And get ready for these just incredible numbers….Intl income for these 18 companies more than tripled from $50 bil in 1999 to $155 bil in 2009, whereas US income for these 18 companies declined from $66 bil in 1999 to $53 bil in 2009. And this trend was most pronounced in the last four years of the Bush/Cheney Administration, with Intl income of these 18 companies growing from $130 bil in 2005 to $211 bil in 2008 (yeah, that’s up 62% in only three years), but with US income of these same 18 companies declining from $100 bil in 2005 to $85 bil in 2008 (yeah, that’s down 15% in the same three years). Whew, we clearly need some policies that will get us back much closer economically to the Clinton years.
The Bush/Cheney income tax rate reductions on the wealthy and the unfunded wars both contributed heavily to the build up of the US deficit in the 2000s decade. However, I think this US multinational corps massive shift from US income to Intl income is the single main reason for the present US double economic disaster…sky-high US federal deficit and sky-high US unemployment/underemployment rates. The earnings, along with the US jobs, were transferred overseas in the decade of the 2000s. And these companies still received massive R&D US federal income tax deductions and also R&D tax credits for doing just that. Thus the now massive US deficit ballooned from both the dramatic drop in US corporate income taxes paid by the multinational corps and also from the dramatic drop in US federal individual income taxes and payroll taxes from the US jobs transferred overseas, with the latter also causing substantial financial pressure on State government coffers, along with the additional US deficit increases from the necessary funding of State government shortfalls.
Yeah, it’s the “Leave Multinational Corp Businesses Alone” decade of the 2000s, predominately in the Bush/Cheney years, causing the present US double economic disaster. You can’t blame the US multinational corps for these massive offshoring steps to maximize their worldwide income. After all, the CEOs of these US multinational corps are rightfully working for their stockholders. However, I think you can rightfully blame the US government for either not being financially savvy enough to understand it or looking the other way while all of this long-term financial devastation to the US jobs picture and to the US federal deficit was happening in the 2000s decade. And then for the US government to pile on by allowing the foreign earnings repatriation in 2004 with a 85% dividend received deduction…..Whoa, and there were even some Democrats who voted for this US multinational corp boondoggle, that effectively forgave US multinational corps of billions and billions of dollars of what they owed the US government in income taxes.
Further, I think it is helpful to look at the changing global income mix of each of these 18 companies in the past decade.
………………………International Pretax Income Mix Percentage
…………………………………………………………............2008-2009
……………………………………………………………..............vs
…………………………………………………………............1999-2000
..........................................................................Average
………………………..2009…..2008…..2000…1999….Change
Caterpillar…………214%.....52%.......29%.....26%.....105%
GE…………………….105%.....87%.......30%.....28%.......67%
Pfizer…………………134%...118%.......82%.....55%.......57%
Microsoft……………72%.....47%.......17%.....10%.......46%
Cisco Systems…….79%......79%......41%......35%......36%
Coca Cola…………..70%......93%......56%......61%......23%
Exxon Mobil……...93%......88%......66%......71%......22%
Chevron…………….93%......75%.......59%......70%.....20%
3M……………………...50%......56%.......40%......30%.....18%
Merck………………….65%......48%.......46%......35%.....16%
JNJ……………………..55%......61%.......43%.......43%.....15%
Kraft Foods…………46%......48%.......36%.......35%.....12%
DuPont……………….92%......59%.......55%.......73%.....11%
Hewlett-Packard….73%......79%........67%......67%......9%
Intel…………………….43%......20%........26%......36%......1%
Procter & Gamble…41%......44%........46%......40%......0%
IBM…………………….47%......50%........49%......50%.....-1%
United Technologies55%......58%........45%......72%.....-2%
Total……………………74%......71%........46%......43%.......28%
To further extend the research here, below are 27 US Non-Dow Industrial Stocks that I found from a quick review which had significant International Operations, significant Research Expenditures and also pretty healthy annual worldwide consolidated income for the most recent five years. You can clearly see the growing Intl income mix trend, particularly so for the 5 Oil-Related Stocks shown here.
…………………… …..........Intl
…………………… …........Income... Intl Operating Income % Mix
…………………… ….........2009 …. 2009. 2008.. 2007. 2006. 2005
Conoco Phillips……... $7.6 bil... 76%... 54%... 40%... 53%... 47%
Abbott Labs…………... $5.7 bil... 79%.. 101%... 85%.. 138%... 55%
Google………………..... $4.8 bil... 57%... 65%... 43%... 33%... 28%
Apple………………….... $4.4 bil... 55%... 51%... 44%... 53%... 51%
Oracle………………...... $4.1 bil... 52%... 50%... 45%... 43%... 52%
PepsiCo……………...... $3.9 bil... 48%... 54%... 47%... 45%... 50%
Schlumberger………... $3.8 bil... 98%... 79%... 74%... 68%... 70%
Amgen………………..... $3.1 bil... 60%... 52%... 63%... 58%... 38%
Bristol-Myers Squibb $2.9 bil... 52%... 53%... 74%.. 126%... 82%
Occidental Petroleum $2.8 bil... 57%... 48%... 46%... 43%... 35%
Ebay…………………...... $2.7 bil... 95%... 85%.... 4%... 50%... 39%
Colgate Palmolive…... $2.4 bil... 67%... 66%... 69%... 71%... 57%
Baxter………………...... $2.3 bil... 84%... 89%... 95%... 89%... 76%
Dell……………………..... $1.8 bil... 89%... 81%... 86%... 78%... 65%
Corning………………..... $1.7 bil... 90%... 72%... 74%... 13%... 32%
Medtronic…………….... $1.5 bil... 56%... 75%... 55%... 50%... 63%
Emerson Electric…...... $1.3 bil... 53%... 53%... 50%... 43%... 46%
Honeywell…………....... $1.2 bil... 41%... 48%... 38%... 33%... 33%
Nike…………………....... $1.1 bil... 57%... 72%... 63%... 61%... 59%
Halliburton…………….. $1.1 bil... 65%... 31%... 36%... 31%... 30%
Qualcomm…………...... $1.0 bil... 50%... 59%... 54%... 54%... 44%
Kimberly-Clark……..... $.9 bil... 36%... 45%... 37%... 26%... 21%
Apache………………..... $.9 bil.. 274%.. 138%... 63%... 68%... 64%
Dow Chemical……...... $.8 bil.. 162%.. 201%... 95%... 55%... 58%
Illinois Tool Works….. $.7 bil... 59%... 49%... 36%... 39%... 36%
Texas Instruments….. $.6 bil... 32%... 30%... 26%... 29%... 36%
Deere…………………..... $.6 bil... 44%... 45%... 40%... 34%... 42%
Total………………….. $65.7 bil... 63%... 61%... 53%... 54%... 49%
My Research Tax Credit Proposals
For 2010, I would
• Increase the US Research Tax Credit from 20% to 40% for 100% domestic small businesses with revenues under a certain amount.
• Increase the US Research Tax Credit from 20% to 30% for 100% domestic businesses with revenues higher than the above small business threshold
• For corps with both US and Intl revenues, set the maximum US Research Tax Credit at 30%, however multiply this 30% by a fraction, which cannot exceed 100%, the numerator being the US pretax operating income and the denominator being the Consolidated worldwide pretax operating income (both numbers coming from the income tax footnote in the most recent annual report)
• Give corps with both US and Intl revenues a second option of instead of the above fraction of the maximum 30% approach, they would be entitled to the entire maximum 30% US Research Tax Credit, if they choose to fund it completely with their foreign earnings repatriation tax (I would set the Research Tax Credit pecking order for foreign earnings repatriation tax tranches precisely in between the Jobs Tax Credit and the Manufacturing Tax Credit)
For 2011, I would reduce the above 40% to 35% for 100% domestic small businesses. Also, I would reduce the above 30% to 25% for larger 100% domestic businesses. On multinationals, the maximum 30% drops to 25%, and the fraction is computed the same way as in 2010, and also the Research Tax Credit would be the first tax tranch for foreign earnings repatriation tax purposes.
For 2012, I would reduce the above 40% to 30% for 100% domestic small businesses. Also, I would reduce the above 30% to 20% for larger 100% domestic businesses. On multinationals, the maximum 30% drops to 20%, and the fraction is computed the same way as in 2010 and the Research Tax Credit would be the first tax tranch for foreign earnings repatriation tax purposes.
I think this three-year approach on the US Research Tax Credit gives US businesses more certainty, which they claim they really need to add US jobs.
The overall CBO cost of this three-year program should approximate the cost of a normal one-year tax extender for the US Research Tax Credit. This very desirable result occurs even though the proposal includes Research Tax Credits for three years instead of for one year and also includes a higher maximum Research Tax Credit percentage. The reason the CBO cost doesn't vary substantially is due to the fact that the majority of the US Research expenditures are made by the large US multinational corps. If these multinational corps choose the maximum Research Tax Credit option, there will be no CBO-scored cost to the US government, since it is completely funded by the foreign earnings repatriation tax. And if they don’t choose the maximum option, their high international operating income mix will substantially and fairly eat into the US Research Tax Credit they will be entitled to.
Now, let me address how I would consider paying for this strong US job-creating proposal, in addition to the above mentioned substantial foreign earnings repatriation tax funding.
For the largest funding vehicle, I would focus on the incentives to move US job overseas and try to reverse this financially devastating trend. It’s all about lower wages and lower corporate income taxes offshore. I have no problem with a US multinational corp setting up a manufacturing plant in Ireland for its very favorable corporate income tax environment, and then those products manufactured in Ireland getting subsequently sold to somewhere in Europe. Likewise, ignoring the unfair air pollution problem which needs to get addressed in climate change legislation, I have no problem with a US multinational corp manufacturing products in places like the Puerto Rico tax haven or in Mexico, and then these manufactured goods are subsequently sold to somewhere in South America.
However, if these products manufactured by a US multinational corp in a low-taxed or low-wage environment offshore are subsequently sold in the US (the Manufacturing Bounce Back), then I do have a major problem with that. Therefore, to be fair, I think the US should impose a duty or tax on US multinational corps that set up manufacturing operations in low-taxed and/or low-waged offshore locations, and then subsequently sell these products back to US customers. This duty or tax, payable to the US government, with a portion of it subsequently shared with US States in some fair manner, should be based on a percentage of the sales price of the products sold to the US customer.
To substantially soften the blow to multinational corps subject to this duty or tax on Manufacturing Bounce Backs, I think I would give them an option of paying for this duty or tax by a like amount of repatriation foreign earnings tax from repatriating foreign earnings.
Second, the 2000s were a lost decade to the US middle class, to those below the middle class, to small and mid-sized purely domestic businesses, and to the country as a whole, with the resultant massive federal deficit increase. When I study who benefited the most from the demise of the US middle class, the US have-nots, and the domestic businesses, I see two main major industries. And these two benefiting industries unfairly placed severe cost pressures on these suffering groups during the decade of the 2000s.
First, there’s the health care industry….all three main parts of it….the health insurance industry, Big Pharma, but just as important and probably even more so, the non-profit hospital industry. The massive rise in health care costs in the 2000s decade put immense financial pressure on both US individuals and on US businesses. Further, in the recently-passed health care legislation, all three of these made out like bandits and hosed the outfoxed US government. The health care cost increases in the 2000s decade will be significantly curtailed with the new health care legislation, but not by nearly as much as they should be. The day will come for these health care industry outsized beneficiaries, but since I’m all health cared out, I’ll pass on them for now. However, Big Pharma would get hit heavily and fairly by my above import tax proposal on Manufacturing Bounce Backs.
But the second and just as significant industry beneficiary is Big Oil. In the 11 years from 1999 to 2009, Exxon Mobil earned worldwide consolidated pretax income of $468 bil and Chevron earned $217 bil, with this total of $685 bil comprising 32% of the total earnings for these 18 huge US multinational corps. But more to the point, Exxon Mobil generated 78% and Chevron 74% of their earnings overseas for that 11 year period. And in the most recent year 2009, it gets even worse, with both Exxon Mobil and Chevron generating 93% of their earnings overseas. Further, in 2009, Exxon Mobil generated 30% of its worldwide revenues in the US, but still only generated 7% of its pretax earnings in the US....there's clearly something out of synch in 2009, partly due to the LIFO Inventory tax loophole in the US, but there's also got to be something unusual going on with the cost allocations between the US and foreign.
Exxon Mobil has paid paltry amounts of US income tax over the years in comparison to its incredibly high profits. When I do the math from its annual report tax footnotes, and add in its very lucrative tax benefits from its executive stock based awards, Exxon Mobil's effective US federal income tax rate paid on its total US pretax profits in the past 11 years is less than 25%....and that's based on severely-deflated LIFO Inventory earnings. At December 31, 2009, the current cost of Exxon Mobil's inventory was an incredible $17.1 bil higher than, or triple, the recorded inventory in its financial statements, much of which was based on oil prices of decades ago. I think the FASB should get its act together and ban unrealistic LIFO Inventory. Pretty much the rest of the world has.
Both of these Big Oil companies are getting massive US tax breaks from tax loopholes like from LIFO Inventory, from Percentage Depletion, and from expensing Intangible Drilling Costs. And other Big Oil companies benefiting from these tax loopholes include foreign-owned companies BP and Royal Dutch Shell, both of which generate a significant portion of their revenues and earnings in the US.....BP generated $84 bil, or 35% of its worldwide revenues, in the US in 2009. I would eliminate these tax breaks for the entire oil industry, for all oil and oil-related companies over a certain size, and scale it in over say a ten-year period. Also, I don't think the oil industry has any business receiving the very lucrative Domestic Production Activity Deduction and I would eliminate its eligibility for all of the oil related industry.
With its severe cost pressure placed on US businesses and US individuals, Big Oil was a major contributor to the lost decade of the 2000s. Thus, I think it is only fair for Big Oil, and for the entire oil related industry for that matter, to now step up to the plate and do its part and pay for some of the tab of these US job-creating Research Tax Credits proposals that could help turn the Bush/Cheney driven 2000s lost decade into an Obama/Biden driven 2010s recovery-from-a-deep-economic-crater decade.
My hunch here is with all of the above substantial funding, there should also be a lot of money left over to reduce the massive US deficit.
And frankly, I think a fair CBO scoring here could well permit my Research Tax Credit proposal for the year 2012 to be made permanent for all subsequent years. Now that would be what I call Increased Business Certainty, the ideal business environment to jump-start job creation.
And further, I think there is enough funding here in the above proposals to also give an additional Research Tax Credit for any US Research that is clearly Green....i.e. whose purpose is to help make the US Energy Independent as quickly as possible. Perhaps call it the Steven Chu Premium Green R&D Tax Credit.
My proposal here is to step up this 20% to 40% for small US businesses in 2010, and from 20% to 30% for larger US businesses in 2010. Also, to give US businesses more certainty, the Research Tax Credit would be extended for two additional years, at 35% in 2011 and at 30% in 2012 for small US businesses, and at 25% in 2011 and at 20% in 2012 for larger businesses. Thus, my proposal will be a much more substantial US job creator than the previous annual tax extension approach. And with the way my proposal deals with US multinational corps creatively, and fairly, the total CBO scored cost of this three-year proposal should approximate the cost of the normal research tax credit one-year extension. How is that possible? Just read on.
Clearly, companies, and the US as a whole, receive major benefits from these US research expenditures. However, there is also a major drawback to the country. The majority of these US research tax credits are given to multinational corps who subsequently generate income overseas from the fruits of this US research. Thus the end result is that these multinational corps receive both US tax deductions and also US Research Tax Credits, even though much of the subsequent related taxable income is generated overseas and thus not taxed in the US. Also, the majority of the job creation of multinational corps from this US research is overseas. Let me explain in much more depth.
From income tax footnotes in their annual reports, of the present 30 Dow Industrial Stocks, there are 12 of them which either have minor research expenditures, such as Financial companies and Retailers, or which are predominately domestic companies.
Thus, here are the remaining present 18 Dow Industrial Stocks with significant overseas operations and also significant research expenditures. Also shown here are the total Pretax Operating Income earned outside the US (or Intl Operating Income) as well as the percentage these Intl Earnings, which were generated outside of the US (or Intl % Mix), comprised of the Worldwide Earnings of each of these 18 companies in total for the last 11 years….the last two Clinton/Gore years (1999 and 2000), all eight Bush/Cheney years (2001-2008), and the first year of Obama/Biden (2009).
……………………....Intl Income....Intl Mix
Exxon Mobil……….$363.8 bil……78%
Chevron…………….$160.1 bil……74%
GE………………….....$115.5 bil…….53%
Pfizer………………...$ 89.0 bil…….85%
IBM……………….....$ 68.1 bil…….49%
Microsoft…………..$ 62.4 bil…….37%
JNJ…………………...$ 60.2 bil…….48%
Merck………………..$ 55.2 bil…….57%
Hewlett-Packard… $ 50.0 bil…….90%
Coca Cola…….........$ 45.5 bil…….67%
Procter & Gamble…$ 41.4 bil…….39%
Cisco Systems………$ 36.4 bil…….56%
Intel…………………...$ 28.7 bil…….31%
United Technologies$ 25.4 bil…….54%
3M…………………......$ 21.4 bil…….47%
Kraft Foods…………..$ 15.1 bil…….35%
Caterpillar…………....$ 14.9 bil…….53%
DuPont……………......$ 14.0 bil…….45%
Total………………...$1,267 bil……60%
Yeah, that’s correct, a monstrous $1.3 trillion of overseas earnings for just these 18 Dow companies, which represents a massive 60% of their worldwide pretax operating earnings.
But even more important, check out the annual trend in the Total Intl Pretax Income Mix as a Percentage of Worldwide Pretax Income for these 18 huge Dow companies:
2009…..74%
2008…..71%
2007…..66%
2006…..62%
2005…..56%
2004…..58%
2003…..52%
2002…..55%
2001…..48%
2000…..46%
1999…..43%
Yeah, that’s a 31% Intl income mix growth in just the last decade (43% in Clinton’s 1999 to 74% in Obama’s 2009). And get ready for these just incredible numbers….Intl income for these 18 companies more than tripled from $50 bil in 1999 to $155 bil in 2009, whereas US income for these 18 companies declined from $66 bil in 1999 to $53 bil in 2009. And this trend was most pronounced in the last four years of the Bush/Cheney Administration, with Intl income of these 18 companies growing from $130 bil in 2005 to $211 bil in 2008 (yeah, that’s up 62% in only three years), but with US income of these same 18 companies declining from $100 bil in 2005 to $85 bil in 2008 (yeah, that’s down 15% in the same three years). Whew, we clearly need some policies that will get us back much closer economically to the Clinton years.
The Bush/Cheney income tax rate reductions on the wealthy and the unfunded wars both contributed heavily to the build up of the US deficit in the 2000s decade. However, I think this US multinational corps massive shift from US income to Intl income is the single main reason for the present US double economic disaster…sky-high US federal deficit and sky-high US unemployment/underemployment rates. The earnings, along with the US jobs, were transferred overseas in the decade of the 2000s. And these companies still received massive R&D US federal income tax deductions and also R&D tax credits for doing just that. Thus the now massive US deficit ballooned from both the dramatic drop in US corporate income taxes paid by the multinational corps and also from the dramatic drop in US federal individual income taxes and payroll taxes from the US jobs transferred overseas, with the latter also causing substantial financial pressure on State government coffers, along with the additional US deficit increases from the necessary funding of State government shortfalls.
Yeah, it’s the “Leave Multinational Corp Businesses Alone” decade of the 2000s, predominately in the Bush/Cheney years, causing the present US double economic disaster. You can’t blame the US multinational corps for these massive offshoring steps to maximize their worldwide income. After all, the CEOs of these US multinational corps are rightfully working for their stockholders. However, I think you can rightfully blame the US government for either not being financially savvy enough to understand it or looking the other way while all of this long-term financial devastation to the US jobs picture and to the US federal deficit was happening in the 2000s decade. And then for the US government to pile on by allowing the foreign earnings repatriation in 2004 with a 85% dividend received deduction…..Whoa, and there were even some Democrats who voted for this US multinational corp boondoggle, that effectively forgave US multinational corps of billions and billions of dollars of what they owed the US government in income taxes.
Further, I think it is helpful to look at the changing global income mix of each of these 18 companies in the past decade.
………………………International Pretax Income Mix Percentage
…………………………………………………………............2008-2009
……………………………………………………………..............vs
…………………………………………………………............1999-2000
..........................................................................Average
………………………..2009…..2008…..2000…1999….Change
Caterpillar…………214%.....52%.......29%.....26%.....105%
GE…………………….105%.....87%.......30%.....28%.......67%
Pfizer…………………134%...118%.......82%.....55%.......57%
Microsoft……………72%.....47%.......17%.....10%.......46%
Cisco Systems…….79%......79%......41%......35%......36%
Coca Cola…………..70%......93%......56%......61%......23%
Exxon Mobil……...93%......88%......66%......71%......22%
Chevron…………….93%......75%.......59%......70%.....20%
3M……………………...50%......56%.......40%......30%.....18%
Merck………………….65%......48%.......46%......35%.....16%
JNJ……………………..55%......61%.......43%.......43%.....15%
Kraft Foods…………46%......48%.......36%.......35%.....12%
DuPont……………….92%......59%.......55%.......73%.....11%
Hewlett-Packard….73%......79%........67%......67%......9%
Intel…………………….43%......20%........26%......36%......1%
Procter & Gamble…41%......44%........46%......40%......0%
IBM…………………….47%......50%........49%......50%.....-1%
United Technologies55%......58%........45%......72%.....-2%
Total……………………74%......71%........46%......43%.......28%
To further extend the research here, below are 27 US Non-Dow Industrial Stocks that I found from a quick review which had significant International Operations, significant Research Expenditures and also pretty healthy annual worldwide consolidated income for the most recent five years. You can clearly see the growing Intl income mix trend, particularly so for the 5 Oil-Related Stocks shown here.
…………………… …..........Intl
…………………… …........Income... Intl Operating Income % Mix
…………………… ….........2009 …. 2009. 2008.. 2007. 2006. 2005
Conoco Phillips……... $7.6 bil... 76%... 54%... 40%... 53%... 47%
Abbott Labs…………... $5.7 bil... 79%.. 101%... 85%.. 138%... 55%
Google………………..... $4.8 bil... 57%... 65%... 43%... 33%... 28%
Apple………………….... $4.4 bil... 55%... 51%... 44%... 53%... 51%
Oracle………………...... $4.1 bil... 52%... 50%... 45%... 43%... 52%
PepsiCo……………...... $3.9 bil... 48%... 54%... 47%... 45%... 50%
Schlumberger………... $3.8 bil... 98%... 79%... 74%... 68%... 70%
Amgen………………..... $3.1 bil... 60%... 52%... 63%... 58%... 38%
Bristol-Myers Squibb $2.9 bil... 52%... 53%... 74%.. 126%... 82%
Occidental Petroleum $2.8 bil... 57%... 48%... 46%... 43%... 35%
Ebay…………………...... $2.7 bil... 95%... 85%.... 4%... 50%... 39%
Colgate Palmolive…... $2.4 bil... 67%... 66%... 69%... 71%... 57%
Baxter………………...... $2.3 bil... 84%... 89%... 95%... 89%... 76%
Dell……………………..... $1.8 bil... 89%... 81%... 86%... 78%... 65%
Corning………………..... $1.7 bil... 90%... 72%... 74%... 13%... 32%
Medtronic…………….... $1.5 bil... 56%... 75%... 55%... 50%... 63%
Emerson Electric…...... $1.3 bil... 53%... 53%... 50%... 43%... 46%
Honeywell…………....... $1.2 bil... 41%... 48%... 38%... 33%... 33%
Nike…………………....... $1.1 bil... 57%... 72%... 63%... 61%... 59%
Halliburton…………….. $1.1 bil... 65%... 31%... 36%... 31%... 30%
Qualcomm…………...... $1.0 bil... 50%... 59%... 54%... 54%... 44%
Kimberly-Clark……..... $.9 bil... 36%... 45%... 37%... 26%... 21%
Apache………………..... $.9 bil.. 274%.. 138%... 63%... 68%... 64%
Dow Chemical……...... $.8 bil.. 162%.. 201%... 95%... 55%... 58%
Illinois Tool Works….. $.7 bil... 59%... 49%... 36%... 39%... 36%
Texas Instruments….. $.6 bil... 32%... 30%... 26%... 29%... 36%
Deere…………………..... $.6 bil... 44%... 45%... 40%... 34%... 42%
Total………………….. $65.7 bil... 63%... 61%... 53%... 54%... 49%
My Research Tax Credit Proposals
For 2010, I would
• Increase the US Research Tax Credit from 20% to 40% for 100% domestic small businesses with revenues under a certain amount.
• Increase the US Research Tax Credit from 20% to 30% for 100% domestic businesses with revenues higher than the above small business threshold
• For corps with both US and Intl revenues, set the maximum US Research Tax Credit at 30%, however multiply this 30% by a fraction, which cannot exceed 100%, the numerator being the US pretax operating income and the denominator being the Consolidated worldwide pretax operating income (both numbers coming from the income tax footnote in the most recent annual report)
• Give corps with both US and Intl revenues a second option of instead of the above fraction of the maximum 30% approach, they would be entitled to the entire maximum 30% US Research Tax Credit, if they choose to fund it completely with their foreign earnings repatriation tax (I would set the Research Tax Credit pecking order for foreign earnings repatriation tax tranches precisely in between the Jobs Tax Credit and the Manufacturing Tax Credit)
For 2011, I would reduce the above 40% to 35% for 100% domestic small businesses. Also, I would reduce the above 30% to 25% for larger 100% domestic businesses. On multinationals, the maximum 30% drops to 25%, and the fraction is computed the same way as in 2010, and also the Research Tax Credit would be the first tax tranch for foreign earnings repatriation tax purposes.
For 2012, I would reduce the above 40% to 30% for 100% domestic small businesses. Also, I would reduce the above 30% to 20% for larger 100% domestic businesses. On multinationals, the maximum 30% drops to 20%, and the fraction is computed the same way as in 2010 and the Research Tax Credit would be the first tax tranch for foreign earnings repatriation tax purposes.
I think this three-year approach on the US Research Tax Credit gives US businesses more certainty, which they claim they really need to add US jobs.
The overall CBO cost of this three-year program should approximate the cost of a normal one-year tax extender for the US Research Tax Credit. This very desirable result occurs even though the proposal includes Research Tax Credits for three years instead of for one year and also includes a higher maximum Research Tax Credit percentage. The reason the CBO cost doesn't vary substantially is due to the fact that the majority of the US Research expenditures are made by the large US multinational corps. If these multinational corps choose the maximum Research Tax Credit option, there will be no CBO-scored cost to the US government, since it is completely funded by the foreign earnings repatriation tax. And if they don’t choose the maximum option, their high international operating income mix will substantially and fairly eat into the US Research Tax Credit they will be entitled to.
Now, let me address how I would consider paying for this strong US job-creating proposal, in addition to the above mentioned substantial foreign earnings repatriation tax funding.
For the largest funding vehicle, I would focus on the incentives to move US job overseas and try to reverse this financially devastating trend. It’s all about lower wages and lower corporate income taxes offshore. I have no problem with a US multinational corp setting up a manufacturing plant in Ireland for its very favorable corporate income tax environment, and then those products manufactured in Ireland getting subsequently sold to somewhere in Europe. Likewise, ignoring the unfair air pollution problem which needs to get addressed in climate change legislation, I have no problem with a US multinational corp manufacturing products in places like the Puerto Rico tax haven or in Mexico, and then these manufactured goods are subsequently sold to somewhere in South America.
However, if these products manufactured by a US multinational corp in a low-taxed or low-wage environment offshore are subsequently sold in the US (the Manufacturing Bounce Back), then I do have a major problem with that. Therefore, to be fair, I think the US should impose a duty or tax on US multinational corps that set up manufacturing operations in low-taxed and/or low-waged offshore locations, and then subsequently sell these products back to US customers. This duty or tax, payable to the US government, with a portion of it subsequently shared with US States in some fair manner, should be based on a percentage of the sales price of the products sold to the US customer.
To substantially soften the blow to multinational corps subject to this duty or tax on Manufacturing Bounce Backs, I think I would give them an option of paying for this duty or tax by a like amount of repatriation foreign earnings tax from repatriating foreign earnings.
Second, the 2000s were a lost decade to the US middle class, to those below the middle class, to small and mid-sized purely domestic businesses, and to the country as a whole, with the resultant massive federal deficit increase. When I study who benefited the most from the demise of the US middle class, the US have-nots, and the domestic businesses, I see two main major industries. And these two benefiting industries unfairly placed severe cost pressures on these suffering groups during the decade of the 2000s.
First, there’s the health care industry….all three main parts of it….the health insurance industry, Big Pharma, but just as important and probably even more so, the non-profit hospital industry. The massive rise in health care costs in the 2000s decade put immense financial pressure on both US individuals and on US businesses. Further, in the recently-passed health care legislation, all three of these made out like bandits and hosed the outfoxed US government. The health care cost increases in the 2000s decade will be significantly curtailed with the new health care legislation, but not by nearly as much as they should be. The day will come for these health care industry outsized beneficiaries, but since I’m all health cared out, I’ll pass on them for now. However, Big Pharma would get hit heavily and fairly by my above import tax proposal on Manufacturing Bounce Backs.
But the second and just as significant industry beneficiary is Big Oil. In the 11 years from 1999 to 2009, Exxon Mobil earned worldwide consolidated pretax income of $468 bil and Chevron earned $217 bil, with this total of $685 bil comprising 32% of the total earnings for these 18 huge US multinational corps. But more to the point, Exxon Mobil generated 78% and Chevron 74% of their earnings overseas for that 11 year period. And in the most recent year 2009, it gets even worse, with both Exxon Mobil and Chevron generating 93% of their earnings overseas. Further, in 2009, Exxon Mobil generated 30% of its worldwide revenues in the US, but still only generated 7% of its pretax earnings in the US....there's clearly something out of synch in 2009, partly due to the LIFO Inventory tax loophole in the US, but there's also got to be something unusual going on with the cost allocations between the US and foreign.
Exxon Mobil has paid paltry amounts of US income tax over the years in comparison to its incredibly high profits. When I do the math from its annual report tax footnotes, and add in its very lucrative tax benefits from its executive stock based awards, Exxon Mobil's effective US federal income tax rate paid on its total US pretax profits in the past 11 years is less than 25%....and that's based on severely-deflated LIFO Inventory earnings. At December 31, 2009, the current cost of Exxon Mobil's inventory was an incredible $17.1 bil higher than, or triple, the recorded inventory in its financial statements, much of which was based on oil prices of decades ago. I think the FASB should get its act together and ban unrealistic LIFO Inventory. Pretty much the rest of the world has.
Both of these Big Oil companies are getting massive US tax breaks from tax loopholes like from LIFO Inventory, from Percentage Depletion, and from expensing Intangible Drilling Costs. And other Big Oil companies benefiting from these tax loopholes include foreign-owned companies BP and Royal Dutch Shell, both of which generate a significant portion of their revenues and earnings in the US.....BP generated $84 bil, or 35% of its worldwide revenues, in the US in 2009. I would eliminate these tax breaks for the entire oil industry, for all oil and oil-related companies over a certain size, and scale it in over say a ten-year period. Also, I don't think the oil industry has any business receiving the very lucrative Domestic Production Activity Deduction and I would eliminate its eligibility for all of the oil related industry.
With its severe cost pressure placed on US businesses and US individuals, Big Oil was a major contributor to the lost decade of the 2000s. Thus, I think it is only fair for Big Oil, and for the entire oil related industry for that matter, to now step up to the plate and do its part and pay for some of the tab of these US job-creating Research Tax Credits proposals that could help turn the Bush/Cheney driven 2000s lost decade into an Obama/Biden driven 2010s recovery-from-a-deep-economic-crater decade.
My hunch here is with all of the above substantial funding, there should also be a lot of money left over to reduce the massive US deficit.
And frankly, I think a fair CBO scoring here could well permit my Research Tax Credit proposal for the year 2012 to be made permanent for all subsequent years. Now that would be what I call Increased Business Certainty, the ideal business environment to jump-start job creation.
And further, I think there is enough funding here in the above proposals to also give an additional Research Tax Credit for any US Research that is clearly Green....i.e. whose purpose is to help make the US Energy Independent as quickly as possible. Perhaps call it the Steven Chu Premium Green R&D Tax Credit.
Wednesday, April 7, 2010
Job Creation Funding #3 Update: Large Corp Deposits on Open IRS Tax Audits
About two months ago, I performed a very quick review of some US large corporation footnotes and from just my very limited review, I found 106 companies that had amounts owed for all open tax audit years in excess of $300 mil each, that in the aggregate totaled $176.8 bil at the most recent year end, which for the majority of these companies was December 31, 2008. This total amount owed for these 106 companies was up 13.4% from the $155.9 bil owed one year earlier. And that 13.4% increase was registered in a year where taxable income of corps was severely hampered by a deep recession.
Projecting that $176.8 bil amount out eleven years using the same 13.4% annual increase of 2008 over 2007, the estimated total tax liability, including accrued interest, at Dec 31, 2019 would be $705 bil.
Now, I am updating and expanding this research. So far, I have found 381 companies that had amounts owed for all open tax audit years of at least $100 mil each, that in the aggregate totaled $269.2 bil, up a substantial 52% from my two month ago estimate. Included in these 381 companies are a handful of foreign companies, with significant US operations.
Most large foreign corps apply International GAAP rather than US FASB GAAP. Thus most foreign corps do not disclose their estimated tax audit exposure amount. I did find two large foreign corps (AstraZeneca and Sanofi-Aventis), which follow International GAAP, but which still disclosed their tax audit exposure amounts. These two foreign corps had $2.9 bil of tax reserves each. Sales to US customers in 2009 was 31% for AstraZeneca and 32% for Sanofi-Aventis.
Projecting that $269.2 bil amount out ten years using the same 13.4% annual increase, the estimated total tax liability, including accrued interest, at Dec 31, 2019, would be an incredibly high $947 bil.
Thus, by using the updated numbers, my best guess is that my 20% tax deposit scheme increases the positive ten-year CBO scoring from the previous range of $120 bil to $140 bil to now a much higher range of $160 bil to $180 bil. And over the second ten-year period, the positive CBO scoring balloons to a range of $403 bil to $453 bil.
My 50% tax deposit scheme increases the positive first ten-year CBO scoring from the previous range of $300 bil to $350 bil to now a much higher range of $400 bil to $450 bil. And over the second ten-year CBO scoring period, the positive CBO scoring goes off the charts to a range of $1.01 trillion to $1.13 trillion....the power of compounding a fairly high annual growth rate over many years.
With these huge potential “pay for” amounts, the US government has a great opportunity to implement some really broad, critically-needed, long-term, private sector Jobs Creation Legislation. And given how large the potential "pay-fors" are here, perhaps even this funding could also be used to solve the Doc Fix on Medicare Fees. And perhaps it might be a lot easier to pass substantial job creation legislation if it is paired with the very popular Medicare Doc Fix.
Let me now focus on why I think the above gigantic $947 bil tax reserve projection in ten years is even substantially understated.
First, the interest growth will be much more pronounced over the next ten years than it has been in the past. The present extremely low interest rates will not continue.
Second, there will be hundreds of companies, which presently have tax reserves below $100 mil, but with these tax reserves growing to above that threshold in the next ten years.
Third, these are just the 381 companies that I found in my quick review. There are many more that I didn’t find.
And fourth, there are thousands of large foreign companies excluded from my tax reserve list, even though they have significant operating activities in the US. Let me explain this in depth.
When I review just the top 50 worldwide profit generators in 2008, the most recent annual rankings by Fortune, only 15 are US corps. Thus, only 15 of these giant corps are included on my US tax reserve list, even though many of the other 35 will be paying much to the US government upon future tax audits.
The highest global earner is Exxon Mobil, with after tax earnings of $45.2 bil. The top six on the top 50 list are all oil companies, and there are many other global oil companies in the top 50. Chevron, another US oil corp, is fourth on the list.
Third on the top 50 list is Royal Dutch Shell, with after tax earnings of $26.3 bil. It makes 22% of its sales to US customers.
Fifth on the top 50 list is BP, with earnings of $21.2 bil. It makes 35% of its sales to US customers.
Neither Shell nor BP are on my tax reserve list of 381 companies.
Other foreign corps on this top 50 earnings list, but not on my list of 381 companies with tax reserves of at least $100 mil are:
• Nestle, with 2008 earnings of $16.7 bil, and with 2009 sales to US customers of 29%
• ArcelorMittal, with earnings of $9.4 bil, and with 2009 sales to US customers of 15%
• Siemens, with earnings of $8.6 bil, and with 2009 sales to US customers of 20%
• GlaxoSmithKline, with earnings of $8.3 bil, and with 2009 sales to US customers of 39% (Also, in 2006, Glaxo paid the US government upon tax audit $3.4 bil to settle a transfer pricing dispute)
• Roche Group, with earnings of $8.3 bil, and with 2009 sales to US customers of 35%
• Novartis, with earnings of $8.2 bil, and with 2009 sales to US customers of 32%
• Barclay’s, with earnings of $8.0 bil, and with US revenues comprising 19% of worldwide revenues
• Unilever, with earnings of $7.4 bil, and with 2009 sales to US customers of 16%
• Volkswagen, with earnings of $7.0 bil, and with 2009 sales to US customers of 11%
Further, there are thousands of huge foreign companies that aren’t in the top 50 global profit list, with very significant US operations, but not on my tax reserve list of 381 companies. Let me just point out two of the numerous such foreign financial institutions.
UBS generated $9 bil of pretax operating profit in the US in 2009, which represented 41% of its worldwide pretax operating profit. And ING generated 15.2 bil of Euros pretax operating income in North America in 2009, which comprised 32% of its worldwide profit. In 2008, ING generated a much higher similar profit in Euros in North America of 25.0 bil, which was 40% of its worldwide 2008 profit.
And here’s just a few of the non-financial global giants not on the top 50 profit list:
• Nintendo, with sales to the Americas of 43%
• Takeda Pharmaceuticals, with sales to US customers of 37%
• Cadbury, with sales to the Americas of 30%, and operating profit to the Americas of 54%
• Alcatel-Lucent, with sales to the Americas of 29%
• British American Tobacco, with sales to the Americas of 22%, and operating profit to the Americas of 27%
• Daimler, with sales to US customers of 21%
• Samsung Electronics, with sales to the Americas of 19%
• Hyundai, with sales to the US of 12%
Thus, my best hunch on what that above $947 bil projected number should be….I’ll stick my neck out and say…..more than $1.5 trillion.
Anyway, here is a listing of the 381 companies, whose income tax footnotes I reviewed, that had estimated tax liabilities, including accrued interest, of at least $100 mil each, for a total of $269.2 bil, owing to all taxing authorities for all open tax audit years at their most recent balance sheet date.
1 Pfizer************************** $9,557 mil
2 JP Morgan Chase**************** $9,008 mil
3 GE***************************** $8,719 mil
4 ATT**************************** $7,523 mil
5 Bank of America***************** $6,353 mil
6 Microsoft*********************** $5,957 mil
7 General Motors****************** $5,822 mil
8 Merck************************** $5,741 mil
9 Wells Fargo********************* $5,692 mil
10 AIG*************************** $5,678 mil
11 Exxon Mobil******************** $5,496 mil
12 IBM*************************** $5,269 mil
13 Morgan Stanley***************** $4,419 mil
14 Entergy************************ $4,098 mil
15 Verizon************************ $3,952 mil
16 Citigroup*********************** $3,449 mil
17 Chevron*********************** $3,427 mil
18 Cisco Systems****************** $3,145 mil
19 Tyco Electronics**************** $2,909 mil
20 AstraZeneca******************** $2,892 mil
21 Sony*************************** $2,884 mil
22 Sanofi-Aventis****************** $2,880 mil
23 Proctor and Gamble************* $2,739 mil
24 JNJ*************************** $2,712 mil
25 Oracle************************* $2,692 mil
26 Dell**************************** $2,300 mil
27 Time Warner******************** $2,226 mil
28 PepsiCo************************ $2,192 mil
29 Abbott Labs******************** $2,172 mil
30 News Corp********************* $2,125 mil
31 Goldman Sachs***************** $2,119 mil
32 Boeing************************ $2,072 mil
33 Hewlett Packard**************** $2,003 mil
34 Energy Future Holdings********* $1,999 mil
35 Covidien********************** $1,844 mil
36 Comcast*********************** $1,704 mil
37 Exelon************************ $1,498 mil
38 ConocoPhillips***************** $1,374 mil
39 Swiss Reinsurance Group******** $1,373 mil
40 Honda Motor****************** $1,365 mil
41 American Express************** $1,363 mil
42 Boston Scientific*************** $1,337 mil
43 Google************************ $1,288 mil
44 Amgen************************ $1,265 mil
45 Apple************************* $1,262 mil
46 Walmart*********************** $1,250 mil
47 Accenture********************* $1,243 mil
48 Starwood Hotel & Resort********* $1,232 mil
49 Ford Motor********************* $1,211 mil
50 Eli Lilly************************ $1,205 mil
51 Credit Suisse******************* $1,194 mil
52 Schlumberger****************** $1,194 mil
53 Public Service Enterprise******** $1,190 mil
54 Johnson Controls*************** $1,117 mil
55 Edison Intl********************* $1,044 mil
56 Kraft************************** $1,039 mil
57 Bristol Myers Squibb*********** $1,022 mil
58 Agilent Technologies************ $971 mil
59 Metlife************************ $971 mil
60 Cardinal Health**************** $958 mil
61 Fannie Mae******************** $952 mil
62 United Technologies************ $935 mil
63 Caterpillar********************* $931 mil
64 Ebay************************** $930 mil
65 Altria Group******************* $928 mil
66 Berkshire Hathaway************ $926 mil
67 Yahoo************************ $908 mil
68 ABB************************** $888 mil
69 Honeywell******************** $870 mil
70 Dupont*********************** $864 mil
71 Disney************************ $828 mil
72 Freddie Mac******************* $805 mil
73 Home Depot******************* $797 mil
74 Mitsubishi UFJ Fincl Group****** $793 mil
75 Illinois Tool Works************* $770 mil
76 Symantec********************* $770 mil
77 Teva Pharmaceuticals********** $726 mil
78 Dow Chemical***************** $718 mil
79 Sara Lee********************** $713 mil
80 Pitney Bowes****************** $702 mil
81 AXA Fincl Group*************** $700 mil
82 Kroger************************ $694 mil
83 PG&E Corp******************** $684 mil
84 3M*************************** $671 mil
85 Duke Energy******************* $664 mil
86 NRG Energy******************* $660 mil
87 Transocean******************** $660 mil
88 Rovi************************** $658 mil
89 Vale************************** $657 mil
90 General Mills****************** $642 mil
91 HCA************************** $641 mil
92 McKesson********************* $627 mil
93 Avis Budget******************** $622 mil
94 Ingersoll-Rand***************** $605 mil
95 DIRECTV Group**************** $599 mil
96 Raytheon********************** $592 mil
97 Kimberly Clark***************** $588 mil
98 Valero Energy****************** $584 mil
99 Target************************* $579 mil
100 Southern Calif Edison********** $561 mil
101 Computer Sciences************ $552 mil
102 Medtronic******************** $545 mil
103 Fortune Brands**************** $543 mil
104 Dr Pepper Snapple Group******* $534 mil
105 Western Union**************** $523 mil
106 Monsanto********************* $513 mil
107 AES************************** $511 mil
108 McDonalds******************** $511 mil
109 Motorola********************** $506 mil
110 Baxter Intl********************* $499 mil
111 CNH Global******************** $493 mil
112 US Bancorp******************** $493 mil
113 First Data********************** $485 mil
114 Toyota Motor****************** $476 mil
115 Celgene************************ $463 mil
116 IAC/Interactive**************** $463 mil
117 Visa*************************** $461 mil
118 Capital One Financial************ $460 mil
119 Praxair************************ $449 mil
120 Coca Cola********************** $448 mil
121 Danaher*********************** $439 mil
122 Liberty Global****************** $436 mil
123 Federal-Mogul***************** $432 mil
124 Northrop Grumman************ $429 mil
125 State Street Corp*************** $424 mil
126 Lincoln National*************** $422 mil
127 PNC Fincl Svcs***************** $421 mil
128 Best Buy********************** $419 mil
129 Harrah's Entertainment********* $416 mil
130 Bank of NY Mellon************* $415 mil
131 Broadcom********************* $413 mil
132 Textron*********************** $408 mil
133 Pulte Homes******************* $407 mil
134 Cadence Design Systems********* $405 mil
135 Intl Paper********************** $403 mil
136 SAP*************************** $394 mil
137 Sears************************** $381 mil
138 MeadWestvaco***************** $380 mil
139 Viacom************************ $378 mil
140 Applied Materials************** $371 mil
141 BearingPoint******************* $364 mil
142 United Parcel Service*********** $360 mil
143 NCR*************************** $356 mil
144 Stryker************************ $352 mil
145 TD Ameritrade***************** $350 mil
146 Adecco************************ $348 mil
147 Discover Fincl Svcs************* $345 mil
148 GMAC************************* $342 mil
149 Yum Brands******************** $342 mil
150 Flextronics********************* $340 mil
151 Baker Hughes******************* $339 mil
152 Century Tel******************** $337 mil
153 Constellation Energy*********** $336 mil
154 Republic Services************** $336 mil
155 Electronic Arts**************** $334 mil
156 Tyco International************* $334 mil
157 Black Rock******************** $333 mil
158 Sprint Nextel****************** $333 mil
159 Carefusion********************* $330 mil
160 Estee Lauder****************** $327 mil
161 Prudential Financial************ $326 mil
162 Rite Aid*********************** $326 mil
163 Eastman Kodak**************** $325 mil
164 Dover************************* $324 mil
165 Nike************************** $324 mil
166 Pall Corp********************** $316 mil
167 El Paso************************ $312 mil
168 Computer Associates*********** $311 mil
169 CC Media Holdings************* $308 mil
170 Deere & Co******************** $307 mil
171 Tyson Foods******************* $304 mil
172 CBS*************************** $298 mil
173 Genworth Financial************* $296 mil
174 Black & Decker***************** $292 mil
175 Halliburton******************** $292 mil
176 Qwest Communications********* $292 mil
177 Altera************************ $291 mil
178 Dominion Resources************ $291 mil
179 Marriott*********************** $291 mil
180 Amerada Hess****************** $288 mil
181 Freeport-McMoRan Copper****** $287 mil
182 Goodrich*********************** $287 mil
183 Macy's************************* $285 mil
184 Staples************************* $283 mil
185 FPL Group********************* $279 mil
186 Garmin************************ $276 mil
187 Graham Packaging************** $276 mil
188 Intel*************************** $275 mil
189 HSBC Finance******************* $274 mil
190 Devon Energy****************** $272 mil
191 Mylan Labs******************** $269 mil
192 Gannett*********************** $266 mil
193 Forest Labs******************** $265 mil
194 United Health Group*********** $264 mil
195 Pepco Holdings**************** $259 mil
196 Dish Network Corp************* $256 mil
197 American Electric Power******** $255 mil
198 Reinsurance Group America***** $255 mil
199 Celanese*********************** $253 mil
200 Fluor************************** $249 mil
201 PPL**************************** $248 mil
202 Mattel************************* $245 mil
203 TJX**************************** $243 mil
204 L-3 Communications************* $242 mil
205 Chesapeake Energy************** $241 mil
206 Eaton************************** $240 mil
207 Mosaic************************* $240 mil
208 Liberty Capital Group*********** $238 mil
209 Liberty Media****************** $238 mil
210 Marsh & McLennan************** $238 mil
211 Adobe************************** $235 mil
212 Atmel************************** $230 mil
213 Sysco************************** $230 mil
214 R R Donnelly & Sons************* $228 mil
215 Cigna*************************** $227 mil
216 EMC**************************** $227 mil
217 Domtar************************* $226 mil
218 PMI**************************** $222 mil
219 Atlas Air WW Holdings*********** $220 mil
220 Southern Co******************* $220 mil
221 Omnicom********************** $219 mil
222 Lockheed Martin*************** $217 mil
223 BB&T************************** $215 mil
224 Expedia************************ $215 mil
225 Visteon************************ $215 mil
226 First Energy******************* $212 mil
227 Colgate Palmolive************* $211 mil
228 Toll Bros********************** $211 mil
229 Pinnacle West Capital********** $209 mil
230 Juniper Networks************** $208 mil
231 LSI*************************** $206 mil
232 Avery Dennison**************** $205 mil
233 Advanced Micro Devices******* $201 mil
234 TRW Automotive Holdings***** $201 mil
235 Sun Trust Banks*************** $200 mil
236 Amazon.com****************** $198 mil
237 Lam Research***************** $197 mil
238 Progress Energy************** $196 mil
239 Air Products & Chemicals****** $195 mil
240 ITT************************** $194 mil
241 Office Depot******************* $194 mil
242 ST Microelectronic************ $193 mil
243 Emerson Electric************* $192 mil
244 Moodys********************** $192 mil
245 Newell Rubbermaid*********** $192 mil
246 Weyerhaeuser***************** $192 mil
247 Travelers********************* $191 mil
248 Center Point Energy************ $190 mil
249 Burlington Northern Sante Fe**** $189 mil
250 Whirlpool********************* $189 mil
251 Owens Corning***************** $186 mil
252 MGM Mirage******************* $185 mil
253 Supervalu********************** $181 mil
254 Autodesk********************** $180 mil
255 Biogen Idec******************** $180 mil
256 San Disk*********************** $180 mil
257 Zimmer Holdings************** $179 mil
258 Levi Strauss******************* $178 mil
259 Ace Limited******************** $175 mil
260 Brocade Communication Sys***** $175 mil
261 Sun Microsystems*************** $172 mil
262 Canon************************* $170 mil
263 Cleco************************** $170 mil
264 Lowe's************************* $169 mil
265 H&R Block********************* $167 mil
266 JC Penney********************* $167 mil
267 Terex************************* $167 mil
268 Unum Group******************* $167 mil
269 MasterCard******************** $165 mil
270 Williams Cos****************** $165 mil
271 Coach************************* $164 mil
272 Limited Brands**************** $164 mil
273 Ashland*********************** $163 mil
274 National Semiconductor******** $162 mil
275 Kellogg*********************** $161 mil
276 Xerox************************* $161 mil
277 Maxim Integrated Products***** $159 mil
278 Northeast Utilities************** $159 mil
279 Genentech********************* $158 mil
280 Imperial Oil******************** $158 mil
281 Tata Communications*********** $158 mil
282 Checkpoint Software************ $157 mil
283 Flowserve********************** $156 mil
284 Polo Ralph Lauren************** $155 mil
285 Solutia************************* $155 mil
286 Constellation Brands************ $154 mil
287 Mohawk Industries************** $154 mil
288 Navistar Intl******************** $153 mil
289 Safeway************************ $153 mil
290 Gap*************************** $152 mil
291 Bunge, Ltd********************* $151 mil
292 Interpublic Group************** $151 mil
293 Owens Illinois****************** $151 mil
294 St Jude Medical**************** $149 mil
295 Wynn Resorts****************** $148 mil
296 Activision Blizzard************* $147 mil
297 Apache*********************** $147 mil
298 Dun & Bradstreet*************** $147 mil
299 Reynolds American************ $147 mil
300 Toys R Us********************* $146 mil
301 W R Grace********************* $146 mil
302 Walgreen's********************* $146 mil
303 Nucor************************* $144 mil
304 Rockwell Automation*********** $144 mil
305 Wellpoint********************** $144 mil
306 Ameren************************ $143 mil
307 Newmont Mining**************** $143 mil
308 SPX**************************** $143 mil
309 Parker Hannifin***************** $142 mil
310 Research in Motion************* $142 mil
311 BMC Software****************** $141 mil
312 Avon Products***************** $139 mil
313 Dole Food********************** $138 mil
314 Avnet************************* $136 mil
315 Coventry Health Care*********** $136 mil
316 Western Digital***************** $136 mil
317 Teleflex*********************** $135 mil
318 Infosys Technologies*********** $134 mil
319 Seagate Technology************ $134 mil
320 Marvell Technology************ $133 mil
321 Quest Diagnostics************** $133 mil
322 Life Technologies************** $132 mil
323 WIPRO*********************** $132 mil
324 Allegheny Energy************** $131 mil
325 Ecolab*********************** $129 mil
326 Goodyear Tire & Rubber******* $129 mil
327 Armstrong World Industries*** $128 mil
328 Monster Worldwide*********** $126 mil
329 Magellan Health Services****** $125 mil
330 Automatic Data Processing**** $122 mil
331 ArvinMeritor***************** $121 mil
332 Nvidia*********************** $121 mil
333 PPG Industries*************** $121 mil
334 Loral Space & Commun******** $120 mil
335 Xilinx*********************** $120 mil
336 Anheuser-Busch************** $119 mil
337 Peabody Energy************** $119 mil
338 Ricoh************************ $119 mil
339 Mizuho Financial Group******* $118 mil
340 NISource******************** $118 mil
341 Northern Trust*************** $117 mil
342 Hasbro********************** $116 mil
343 Noble Corp******************* $116 mil
344 Bed Bath & Beyond************ $115 mil
345 Calpine*********************** $115 mil
346 Canadian Pacific Railway******* $115 mil
347 Clorox************************ $115 mil
348 Intl Game Technology********** $114 mil
349 Kohl's************************** $114 mil
350 Kyocera************************ $114 mil
351 Cintas************************** $111 mil
352 Lennar************************* $111 mil
353 Medco Health Solutions********** $111 mil
354 SLM**************************** $111 mil
355 Heinz*************************** $110 mil
356 NetApp************************* $110 mil
357 Temple-Inland****************** $110 mil
358 US Steel*********************** $110 mil
359 Logitech*********************** $109 mil
360 McAfee************************ $109 mil
361 New Page Holdings************* $109 mil
362 Rohm & Haas****************** $109 mil
363 Apollo Group****************** $108 mil
364 Alliant Energy***************** $107 mil
365 Gilead Sciences*************** $107 mil
366 Nabors Industries************* $107 mil
367 Rockwell Collins*************** $107 mil
368 Norfolk Southern************** $106 mil
369 YRC Worldwide*************** $106 mil
370 Harley Davidson*************** $105 mil
371 ABM Industries**************** $103 mil
372 Amdox Limited**************** $103 mil
373 American Tower*************** $103 mil
374 Delphi************************* $103 mil
375 Tenneco*********************** $103 mil
376 Iron Mountain***************** $101 mil
377 Aon*************************** $100 mil
378 Costco************************* $100 mil
379 NII Holdings******************** $100 mil
380 ProLogis*********************** $100 mil
381 Sempra Energy***************** $100 mil
Total************************** $269,192 mil
Projecting that $176.8 bil amount out eleven years using the same 13.4% annual increase of 2008 over 2007, the estimated total tax liability, including accrued interest, at Dec 31, 2019 would be $705 bil.
Now, I am updating and expanding this research. So far, I have found 381 companies that had amounts owed for all open tax audit years of at least $100 mil each, that in the aggregate totaled $269.2 bil, up a substantial 52% from my two month ago estimate. Included in these 381 companies are a handful of foreign companies, with significant US operations.
Most large foreign corps apply International GAAP rather than US FASB GAAP. Thus most foreign corps do not disclose their estimated tax audit exposure amount. I did find two large foreign corps (AstraZeneca and Sanofi-Aventis), which follow International GAAP, but which still disclosed their tax audit exposure amounts. These two foreign corps had $2.9 bil of tax reserves each. Sales to US customers in 2009 was 31% for AstraZeneca and 32% for Sanofi-Aventis.
Projecting that $269.2 bil amount out ten years using the same 13.4% annual increase, the estimated total tax liability, including accrued interest, at Dec 31, 2019, would be an incredibly high $947 bil.
Thus, by using the updated numbers, my best guess is that my 20% tax deposit scheme increases the positive ten-year CBO scoring from the previous range of $120 bil to $140 bil to now a much higher range of $160 bil to $180 bil. And over the second ten-year period, the positive CBO scoring balloons to a range of $403 bil to $453 bil.
My 50% tax deposit scheme increases the positive first ten-year CBO scoring from the previous range of $300 bil to $350 bil to now a much higher range of $400 bil to $450 bil. And over the second ten-year CBO scoring period, the positive CBO scoring goes off the charts to a range of $1.01 trillion to $1.13 trillion....the power of compounding a fairly high annual growth rate over many years.
With these huge potential “pay for” amounts, the US government has a great opportunity to implement some really broad, critically-needed, long-term, private sector Jobs Creation Legislation. And given how large the potential "pay-fors" are here, perhaps even this funding could also be used to solve the Doc Fix on Medicare Fees. And perhaps it might be a lot easier to pass substantial job creation legislation if it is paired with the very popular Medicare Doc Fix.
Let me now focus on why I think the above gigantic $947 bil tax reserve projection in ten years is even substantially understated.
First, the interest growth will be much more pronounced over the next ten years than it has been in the past. The present extremely low interest rates will not continue.
Second, there will be hundreds of companies, which presently have tax reserves below $100 mil, but with these tax reserves growing to above that threshold in the next ten years.
Third, these are just the 381 companies that I found in my quick review. There are many more that I didn’t find.
And fourth, there are thousands of large foreign companies excluded from my tax reserve list, even though they have significant operating activities in the US. Let me explain this in depth.
When I review just the top 50 worldwide profit generators in 2008, the most recent annual rankings by Fortune, only 15 are US corps. Thus, only 15 of these giant corps are included on my US tax reserve list, even though many of the other 35 will be paying much to the US government upon future tax audits.
The highest global earner is Exxon Mobil, with after tax earnings of $45.2 bil. The top six on the top 50 list are all oil companies, and there are many other global oil companies in the top 50. Chevron, another US oil corp, is fourth on the list.
Third on the top 50 list is Royal Dutch Shell, with after tax earnings of $26.3 bil. It makes 22% of its sales to US customers.
Fifth on the top 50 list is BP, with earnings of $21.2 bil. It makes 35% of its sales to US customers.
Neither Shell nor BP are on my tax reserve list of 381 companies.
Other foreign corps on this top 50 earnings list, but not on my list of 381 companies with tax reserves of at least $100 mil are:
• Nestle, with 2008 earnings of $16.7 bil, and with 2009 sales to US customers of 29%
• ArcelorMittal, with earnings of $9.4 bil, and with 2009 sales to US customers of 15%
• Siemens, with earnings of $8.6 bil, and with 2009 sales to US customers of 20%
• GlaxoSmithKline, with earnings of $8.3 bil, and with 2009 sales to US customers of 39% (Also, in 2006, Glaxo paid the US government upon tax audit $3.4 bil to settle a transfer pricing dispute)
• Roche Group, with earnings of $8.3 bil, and with 2009 sales to US customers of 35%
• Novartis, with earnings of $8.2 bil, and with 2009 sales to US customers of 32%
• Barclay’s, with earnings of $8.0 bil, and with US revenues comprising 19% of worldwide revenues
• Unilever, with earnings of $7.4 bil, and with 2009 sales to US customers of 16%
• Volkswagen, with earnings of $7.0 bil, and with 2009 sales to US customers of 11%
Further, there are thousands of huge foreign companies that aren’t in the top 50 global profit list, with very significant US operations, but not on my tax reserve list of 381 companies. Let me just point out two of the numerous such foreign financial institutions.
UBS generated $9 bil of pretax operating profit in the US in 2009, which represented 41% of its worldwide pretax operating profit. And ING generated 15.2 bil of Euros pretax operating income in North America in 2009, which comprised 32% of its worldwide profit. In 2008, ING generated a much higher similar profit in Euros in North America of 25.0 bil, which was 40% of its worldwide 2008 profit.
And here’s just a few of the non-financial global giants not on the top 50 profit list:
• Nintendo, with sales to the Americas of 43%
• Takeda Pharmaceuticals, with sales to US customers of 37%
• Cadbury, with sales to the Americas of 30%, and operating profit to the Americas of 54%
• Alcatel-Lucent, with sales to the Americas of 29%
• British American Tobacco, with sales to the Americas of 22%, and operating profit to the Americas of 27%
• Daimler, with sales to US customers of 21%
• Samsung Electronics, with sales to the Americas of 19%
• Hyundai, with sales to the US of 12%
Thus, my best hunch on what that above $947 bil projected number should be….I’ll stick my neck out and say…..more than $1.5 trillion.
Anyway, here is a listing of the 381 companies, whose income tax footnotes I reviewed, that had estimated tax liabilities, including accrued interest, of at least $100 mil each, for a total of $269.2 bil, owing to all taxing authorities for all open tax audit years at their most recent balance sheet date.
1 Pfizer************************** $9,557 mil
2 JP Morgan Chase**************** $9,008 mil
3 GE***************************** $8,719 mil
4 ATT**************************** $7,523 mil
5 Bank of America***************** $6,353 mil
6 Microsoft*********************** $5,957 mil
7 General Motors****************** $5,822 mil
8 Merck************************** $5,741 mil
9 Wells Fargo********************* $5,692 mil
10 AIG*************************** $5,678 mil
11 Exxon Mobil******************** $5,496 mil
12 IBM*************************** $5,269 mil
13 Morgan Stanley***************** $4,419 mil
14 Entergy************************ $4,098 mil
15 Verizon************************ $3,952 mil
16 Citigroup*********************** $3,449 mil
17 Chevron*********************** $3,427 mil
18 Cisco Systems****************** $3,145 mil
19 Tyco Electronics**************** $2,909 mil
20 AstraZeneca******************** $2,892 mil
21 Sony*************************** $2,884 mil
22 Sanofi-Aventis****************** $2,880 mil
23 Proctor and Gamble************* $2,739 mil
24 JNJ*************************** $2,712 mil
25 Oracle************************* $2,692 mil
26 Dell**************************** $2,300 mil
27 Time Warner******************** $2,226 mil
28 PepsiCo************************ $2,192 mil
29 Abbott Labs******************** $2,172 mil
30 News Corp********************* $2,125 mil
31 Goldman Sachs***************** $2,119 mil
32 Boeing************************ $2,072 mil
33 Hewlett Packard**************** $2,003 mil
34 Energy Future Holdings********* $1,999 mil
35 Covidien********************** $1,844 mil
36 Comcast*********************** $1,704 mil
37 Exelon************************ $1,498 mil
38 ConocoPhillips***************** $1,374 mil
39 Swiss Reinsurance Group******** $1,373 mil
40 Honda Motor****************** $1,365 mil
41 American Express************** $1,363 mil
42 Boston Scientific*************** $1,337 mil
43 Google************************ $1,288 mil
44 Amgen************************ $1,265 mil
45 Apple************************* $1,262 mil
46 Walmart*********************** $1,250 mil
47 Accenture********************* $1,243 mil
48 Starwood Hotel & Resort********* $1,232 mil
49 Ford Motor********************* $1,211 mil
50 Eli Lilly************************ $1,205 mil
51 Credit Suisse******************* $1,194 mil
52 Schlumberger****************** $1,194 mil
53 Public Service Enterprise******** $1,190 mil
54 Johnson Controls*************** $1,117 mil
55 Edison Intl********************* $1,044 mil
56 Kraft************************** $1,039 mil
57 Bristol Myers Squibb*********** $1,022 mil
58 Agilent Technologies************ $971 mil
59 Metlife************************ $971 mil
60 Cardinal Health**************** $958 mil
61 Fannie Mae******************** $952 mil
62 United Technologies************ $935 mil
63 Caterpillar********************* $931 mil
64 Ebay************************** $930 mil
65 Altria Group******************* $928 mil
66 Berkshire Hathaway************ $926 mil
67 Yahoo************************ $908 mil
68 ABB************************** $888 mil
69 Honeywell******************** $870 mil
70 Dupont*********************** $864 mil
71 Disney************************ $828 mil
72 Freddie Mac******************* $805 mil
73 Home Depot******************* $797 mil
74 Mitsubishi UFJ Fincl Group****** $793 mil
75 Illinois Tool Works************* $770 mil
76 Symantec********************* $770 mil
77 Teva Pharmaceuticals********** $726 mil
78 Dow Chemical***************** $718 mil
79 Sara Lee********************** $713 mil
80 Pitney Bowes****************** $702 mil
81 AXA Fincl Group*************** $700 mil
82 Kroger************************ $694 mil
83 PG&E Corp******************** $684 mil
84 3M*************************** $671 mil
85 Duke Energy******************* $664 mil
86 NRG Energy******************* $660 mil
87 Transocean******************** $660 mil
88 Rovi************************** $658 mil
89 Vale************************** $657 mil
90 General Mills****************** $642 mil
91 HCA************************** $641 mil
92 McKesson********************* $627 mil
93 Avis Budget******************** $622 mil
94 Ingersoll-Rand***************** $605 mil
95 DIRECTV Group**************** $599 mil
96 Raytheon********************** $592 mil
97 Kimberly Clark***************** $588 mil
98 Valero Energy****************** $584 mil
99 Target************************* $579 mil
100 Southern Calif Edison********** $561 mil
101 Computer Sciences************ $552 mil
102 Medtronic******************** $545 mil
103 Fortune Brands**************** $543 mil
104 Dr Pepper Snapple Group******* $534 mil
105 Western Union**************** $523 mil
106 Monsanto********************* $513 mil
107 AES************************** $511 mil
108 McDonalds******************** $511 mil
109 Motorola********************** $506 mil
110 Baxter Intl********************* $499 mil
111 CNH Global******************** $493 mil
112 US Bancorp******************** $493 mil
113 First Data********************** $485 mil
114 Toyota Motor****************** $476 mil
115 Celgene************************ $463 mil
116 IAC/Interactive**************** $463 mil
117 Visa*************************** $461 mil
118 Capital One Financial************ $460 mil
119 Praxair************************ $449 mil
120 Coca Cola********************** $448 mil
121 Danaher*********************** $439 mil
122 Liberty Global****************** $436 mil
123 Federal-Mogul***************** $432 mil
124 Northrop Grumman************ $429 mil
125 State Street Corp*************** $424 mil
126 Lincoln National*************** $422 mil
127 PNC Fincl Svcs***************** $421 mil
128 Best Buy********************** $419 mil
129 Harrah's Entertainment********* $416 mil
130 Bank of NY Mellon************* $415 mil
131 Broadcom********************* $413 mil
132 Textron*********************** $408 mil
133 Pulte Homes******************* $407 mil
134 Cadence Design Systems********* $405 mil
135 Intl Paper********************** $403 mil
136 SAP*************************** $394 mil
137 Sears************************** $381 mil
138 MeadWestvaco***************** $380 mil
139 Viacom************************ $378 mil
140 Applied Materials************** $371 mil
141 BearingPoint******************* $364 mil
142 United Parcel Service*********** $360 mil
143 NCR*************************** $356 mil
144 Stryker************************ $352 mil
145 TD Ameritrade***************** $350 mil
146 Adecco************************ $348 mil
147 Discover Fincl Svcs************* $345 mil
148 GMAC************************* $342 mil
149 Yum Brands******************** $342 mil
150 Flextronics********************* $340 mil
151 Baker Hughes******************* $339 mil
152 Century Tel******************** $337 mil
153 Constellation Energy*********** $336 mil
154 Republic Services************** $336 mil
155 Electronic Arts**************** $334 mil
156 Tyco International************* $334 mil
157 Black Rock******************** $333 mil
158 Sprint Nextel****************** $333 mil
159 Carefusion********************* $330 mil
160 Estee Lauder****************** $327 mil
161 Prudential Financial************ $326 mil
162 Rite Aid*********************** $326 mil
163 Eastman Kodak**************** $325 mil
164 Dover************************* $324 mil
165 Nike************************** $324 mil
166 Pall Corp********************** $316 mil
167 El Paso************************ $312 mil
168 Computer Associates*********** $311 mil
169 CC Media Holdings************* $308 mil
170 Deere & Co******************** $307 mil
171 Tyson Foods******************* $304 mil
172 CBS*************************** $298 mil
173 Genworth Financial************* $296 mil
174 Black & Decker***************** $292 mil
175 Halliburton******************** $292 mil
176 Qwest Communications********* $292 mil
177 Altera************************ $291 mil
178 Dominion Resources************ $291 mil
179 Marriott*********************** $291 mil
180 Amerada Hess****************** $288 mil
181 Freeport-McMoRan Copper****** $287 mil
182 Goodrich*********************** $287 mil
183 Macy's************************* $285 mil
184 Staples************************* $283 mil
185 FPL Group********************* $279 mil
186 Garmin************************ $276 mil
187 Graham Packaging************** $276 mil
188 Intel*************************** $275 mil
189 HSBC Finance******************* $274 mil
190 Devon Energy****************** $272 mil
191 Mylan Labs******************** $269 mil
192 Gannett*********************** $266 mil
193 Forest Labs******************** $265 mil
194 United Health Group*********** $264 mil
195 Pepco Holdings**************** $259 mil
196 Dish Network Corp************* $256 mil
197 American Electric Power******** $255 mil
198 Reinsurance Group America***** $255 mil
199 Celanese*********************** $253 mil
200 Fluor************************** $249 mil
201 PPL**************************** $248 mil
202 Mattel************************* $245 mil
203 TJX**************************** $243 mil
204 L-3 Communications************* $242 mil
205 Chesapeake Energy************** $241 mil
206 Eaton************************** $240 mil
207 Mosaic************************* $240 mil
208 Liberty Capital Group*********** $238 mil
209 Liberty Media****************** $238 mil
210 Marsh & McLennan************** $238 mil
211 Adobe************************** $235 mil
212 Atmel************************** $230 mil
213 Sysco************************** $230 mil
214 R R Donnelly & Sons************* $228 mil
215 Cigna*************************** $227 mil
216 EMC**************************** $227 mil
217 Domtar************************* $226 mil
218 PMI**************************** $222 mil
219 Atlas Air WW Holdings*********** $220 mil
220 Southern Co******************* $220 mil
221 Omnicom********************** $219 mil
222 Lockheed Martin*************** $217 mil
223 BB&T************************** $215 mil
224 Expedia************************ $215 mil
225 Visteon************************ $215 mil
226 First Energy******************* $212 mil
227 Colgate Palmolive************* $211 mil
228 Toll Bros********************** $211 mil
229 Pinnacle West Capital********** $209 mil
230 Juniper Networks************** $208 mil
231 LSI*************************** $206 mil
232 Avery Dennison**************** $205 mil
233 Advanced Micro Devices******* $201 mil
234 TRW Automotive Holdings***** $201 mil
235 Sun Trust Banks*************** $200 mil
236 Amazon.com****************** $198 mil
237 Lam Research***************** $197 mil
238 Progress Energy************** $196 mil
239 Air Products & Chemicals****** $195 mil
240 ITT************************** $194 mil
241 Office Depot******************* $194 mil
242 ST Microelectronic************ $193 mil
243 Emerson Electric************* $192 mil
244 Moodys********************** $192 mil
245 Newell Rubbermaid*********** $192 mil
246 Weyerhaeuser***************** $192 mil
247 Travelers********************* $191 mil
248 Center Point Energy************ $190 mil
249 Burlington Northern Sante Fe**** $189 mil
250 Whirlpool********************* $189 mil
251 Owens Corning***************** $186 mil
252 MGM Mirage******************* $185 mil
253 Supervalu********************** $181 mil
254 Autodesk********************** $180 mil
255 Biogen Idec******************** $180 mil
256 San Disk*********************** $180 mil
257 Zimmer Holdings************** $179 mil
258 Levi Strauss******************* $178 mil
259 Ace Limited******************** $175 mil
260 Brocade Communication Sys***** $175 mil
261 Sun Microsystems*************** $172 mil
262 Canon************************* $170 mil
263 Cleco************************** $170 mil
264 Lowe's************************* $169 mil
265 H&R Block********************* $167 mil
266 JC Penney********************* $167 mil
267 Terex************************* $167 mil
268 Unum Group******************* $167 mil
269 MasterCard******************** $165 mil
270 Williams Cos****************** $165 mil
271 Coach************************* $164 mil
272 Limited Brands**************** $164 mil
273 Ashland*********************** $163 mil
274 National Semiconductor******** $162 mil
275 Kellogg*********************** $161 mil
276 Xerox************************* $161 mil
277 Maxim Integrated Products***** $159 mil
278 Northeast Utilities************** $159 mil
279 Genentech********************* $158 mil
280 Imperial Oil******************** $158 mil
281 Tata Communications*********** $158 mil
282 Checkpoint Software************ $157 mil
283 Flowserve********************** $156 mil
284 Polo Ralph Lauren************** $155 mil
285 Solutia************************* $155 mil
286 Constellation Brands************ $154 mil
287 Mohawk Industries************** $154 mil
288 Navistar Intl******************** $153 mil
289 Safeway************************ $153 mil
290 Gap*************************** $152 mil
291 Bunge, Ltd********************* $151 mil
292 Interpublic Group************** $151 mil
293 Owens Illinois****************** $151 mil
294 St Jude Medical**************** $149 mil
295 Wynn Resorts****************** $148 mil
296 Activision Blizzard************* $147 mil
297 Apache*********************** $147 mil
298 Dun & Bradstreet*************** $147 mil
299 Reynolds American************ $147 mil
300 Toys R Us********************* $146 mil
301 W R Grace********************* $146 mil
302 Walgreen's********************* $146 mil
303 Nucor************************* $144 mil
304 Rockwell Automation*********** $144 mil
305 Wellpoint********************** $144 mil
306 Ameren************************ $143 mil
307 Newmont Mining**************** $143 mil
308 SPX**************************** $143 mil
309 Parker Hannifin***************** $142 mil
310 Research in Motion************* $142 mil
311 BMC Software****************** $141 mil
312 Avon Products***************** $139 mil
313 Dole Food********************** $138 mil
314 Avnet************************* $136 mil
315 Coventry Health Care*********** $136 mil
316 Western Digital***************** $136 mil
317 Teleflex*********************** $135 mil
318 Infosys Technologies*********** $134 mil
319 Seagate Technology************ $134 mil
320 Marvell Technology************ $133 mil
321 Quest Diagnostics************** $133 mil
322 Life Technologies************** $132 mil
323 WIPRO*********************** $132 mil
324 Allegheny Energy************** $131 mil
325 Ecolab*********************** $129 mil
326 Goodyear Tire & Rubber******* $129 mil
327 Armstrong World Industries*** $128 mil
328 Monster Worldwide*********** $126 mil
329 Magellan Health Services****** $125 mil
330 Automatic Data Processing**** $122 mil
331 ArvinMeritor***************** $121 mil
332 Nvidia*********************** $121 mil
333 PPG Industries*************** $121 mil
334 Loral Space & Commun******** $120 mil
335 Xilinx*********************** $120 mil
336 Anheuser-Busch************** $119 mil
337 Peabody Energy************** $119 mil
338 Ricoh************************ $119 mil
339 Mizuho Financial Group******* $118 mil
340 NISource******************** $118 mil
341 Northern Trust*************** $117 mil
342 Hasbro********************** $116 mil
343 Noble Corp******************* $116 mil
344 Bed Bath & Beyond************ $115 mil
345 Calpine*********************** $115 mil
346 Canadian Pacific Railway******* $115 mil
347 Clorox************************ $115 mil
348 Intl Game Technology********** $114 mil
349 Kohl's************************** $114 mil
350 Kyocera************************ $114 mil
351 Cintas************************** $111 mil
352 Lennar************************* $111 mil
353 Medco Health Solutions********** $111 mil
354 SLM**************************** $111 mil
355 Heinz*************************** $110 mil
356 NetApp************************* $110 mil
357 Temple-Inland****************** $110 mil
358 US Steel*********************** $110 mil
359 Logitech*********************** $109 mil
360 McAfee************************ $109 mil
361 New Page Holdings************* $109 mil
362 Rohm & Haas****************** $109 mil
363 Apollo Group****************** $108 mil
364 Alliant Energy***************** $107 mil
365 Gilead Sciences*************** $107 mil
366 Nabors Industries************* $107 mil
367 Rockwell Collins*************** $107 mil
368 Norfolk Southern************** $106 mil
369 YRC Worldwide*************** $106 mil
370 Harley Davidson*************** $105 mil
371 ABM Industries**************** $103 mil
372 Amdox Limited**************** $103 mil
373 American Tower*************** $103 mil
374 Delphi************************* $103 mil
375 Tenneco*********************** $103 mil
376 Iron Mountain***************** $101 mil
377 Aon*************************** $100 mil
378 Costco************************* $100 mil
379 NII Holdings******************** $100 mil
380 ProLogis*********************** $100 mil
381 Sempra Energy***************** $100 mil
Total************************** $269,192 mil
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