Corporate Profits – Born in the US, Taxed Elsewhere or Nowhere

Corporate Profits – Born in the US, Taxed Elsewhere or Nowhere

By, Simon Maierhofer

Thursday January 23, 2014

U. S. corporations do what it takes to please shareholders and increase profits. This includes firing long-time employees, cutting costs, and evading taxes. As profits have soared to all-time highs, corporations have found ways to stiff Uncle Sam.

Corporate U.S. profits are higher than ever before.

U.S. corporations have morphed into efficient money making and tax evading machines.

According to the Bureau of Economic Analysis, U.S. corporations generated profits of $1.7 trillion in 2013.

The black line in the chart below shows profits at an all time high.

One would think that higher corporate profits equals higher taxes, but that’s not so.

The red line of the chart shows that corporate tax payments in 2013 were no higher than in 2005.

It’s become common practice to park profits overseas where Uncle Sam’s long, greedy fingers can’t reach.

According to a report from the Citizens for Tax Justice, U.S. companies ‘save’ nearly $100 billion a year in taxes by keeping their cash overseas.

Apple’s subsidiary in Ireland enjoys a tax rate of 2%. According to filings, Apple sent the IRS $6 billion in 2012 taxes. Apple’s 2012 pre-tax profit was $74 billion.

I’m always curious to see if there’s a relationship between profits/taxes and the S&P 500 (SNP: ^GSPC) or Dow Jones.

The second chart plots the S&P 500 against the profit and tax data.

The correlation doesn’t allow for any slam-dunk conclusions. The S&P 500 (NYSEArca: SPY) and Dow Jones (DJI: ^DJI) have been climbing higher along with profits.

One thing is for sure: Less taxes means more cash. In fact, corporations hold more cash today than at any other time in history (Reuters reports a cash pile of $7 trillion).

Many economists and analysts believe that all this cash will soon send stocks soaring.

If the Fed’s $3 trillion spending spree sent the S&P 500 175% higher, how much can $7 trillion do to stocks?

This article will tell you everything you need to know about the (U.S.) corporate cash pile and its possible effect (or not?) on the S&P 500: $7 Trillion Corporate Cash Pile - Will it Set the Stock Market on Fire?

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.