Corporate profit bubble keeps blowing higher while their taxes go down. Happy Labor Day weekend!

Just in time for this Labor Day weekend, we have new information in the updated GDP report which shows corporate profits keeps rising in the US.

Pretax profits at U.S. companies climbed 7.7 percent from a year earlier, the most since 2014 and the seventh consecutive gain, according to Commerce Department data released Wednesday. Throw in the boost from lower taxes that went into effect this year under the Trump administration, and firms have plenty of wherewithal for more investment and hiring….

After-tax corporate profits grew 2.4 percent last quarter from the prior period, down from an 8.2 percent jump at the start of 2018, according to the Commerce Department’s first estimate of second-quarter profits.

The article is underselling it, because it only looks at pre-tax profits. If you go into Table 9 of the updated GDP report, you’ll see that post-tax profits for corporations were up 16.1% compared to a year ago, and 58.0% after net dividends are figured in.

So what’s happening to that 16.1% in post-tax profits? It’s making the stock market bubblicious again, and leading to more automation. As Yahoo Finance notes

The expanding coffers are reflected in a stock market hitting record highs. Businesses are also putting the cash to use: nonresidential fixed investment, which includes spending on equipment, structures and intellectual property, increased last quarter by [an annual rate of] 8.5 percent, revised from a previously estimated 7.3 percent, the data showed. Spending on business equipment rose an upwardly revised 4.4 percent.

Firms are also on a stock-buyback spree following the tax windfall, with Goldman Sachs Group Inc. estimating that companies in the S&P 500 index will authorize $1 trillion in stock buybacks in 2018, a record and a 46 percent jump from last year.

The big question is whether companies continue to be as enthusiastic about investing and employment, given the headwinds from a trade war and a fading benefit from the tax stimulus. The latest figures indicate that the boost from tax cuts “has already hit the corporate bottom line,” according to Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

So what about the employment side of the equation? That’s not going up nearly as much. Total compensation paid to all employees went up only 4.7% compared to the same quarter a year ago, and when you figure that total jobs rose by 1.7% over that same time period, that means compensation per worker only rose by 2.9% - no better than the rate of inflation.

Even though pre-tax profits keep going up with corporations, they're paying less and less to Uncle Sam. This is a trend that was already happening as income inequality exploded in the US over last 15-20 years, but the GOP's Tax Scam has put that on steroids, and has caused corporate taxes to plummet while profits stay high.

Due to tax cuts the federal government now collects less in taxes from corporations than in 1995 when corporate profits were 1/3 of what they are now.
2018 has seen a complete collapse in taxes collected. pic.twitter.com/jgnMsQKd7S

— Sven Henrich (@NorthmanTrader) August 30, 2018

And the same trend showed up in Wisconsin's newly-released year-end revenue figures for the 2018 Fiscal Year. While the overall numbers were good (in fact, they were a $18 mil above the LFB's estimates from January), corporate taxes in Wisconsin fell short by more than $56 million. In addition, it was the 3rd straight year that corporate tax revenues in the state.

Corporate tax revenues, Wisconsin
FY 2015 $1,004.9 mil
FY 2016 $963.0 mil
FY 2017 $920.9 mil
FY 2018 $893.9 mil

And with the need for this “profit and earnings bubble” to keep going higher, do you think corporations are going to pay employees more, and risk having the numbers go down, or will they put that money into machines and stock buybacks to keep the benefits for themselves and other shareholders? If you’re even bothering to contemplate this question, you haven’t paid much attention to how capitalism really has worked over the last 40 years.

So when does the bubble pop, and/or the layoffs begin? Is it after the “disappointing” 3rd quarter 2018 earnings results, as the one-time boost from tax cuts and stock buybacks stalls out? Is it when many multi-nationals get low prices and/or reduced markets from Trump’s trade wars? Is it when people file their taxes in Winter 2019, realize that the GOP’s Tax Scam has made their planned deductions for home ownership worthless, and have to pay Uncle Sam instead of getting a refund?

It sure seems like something’s going to come up to end the profit and earnings bubble that’s making an already absurdly unequal country even more separated, and it seems likely to be sooner than later.