Thursday, May 3, 2018

Corporate Net Profits Highest Since 2011

Corporate net profits expanded dramatically in the last quarter.  Net profits increased because of rising profits and a cut in the corporate tax rate from 35% to 21%.  Fifty percent of the increase in net income for 200 large corporations was due to the cut in the corporate tax rate.

The increase in net income led to a big increase in earnings per share (EPS).  Stock prices are directly related to EPS.  Consequently, shareholders became wealthier due to rising stock prices;  they also benefited from corporate stock buybacks which makes each share more valuable, and from an increase in corporate dividend payouts.  Dividends and capital gains on stock sales are also good for shareholders.  They are taxed at much lower rate than earned income.

Its very clear how shareholders benefited from Trump's tax plan.  Its less evident that middle class taxpayers did nearly as well as shareholders.  Of course, the tax bill was sold as a middle class tax plan by the huckster in the White House and his allies in congress.

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