THE BLOG
12/08/2014 12:21 pm ET Updated Dec 06, 2017

Corporate Profits Are Sky-high, Wages Are Down -- Yet Extending Corporate Tax Breaks Is an Urgent Issue?

Chip Somodevilla via Getty Images

Maybe I'm an idiot. But there's something I just don't understand, and perhaps one of you good people can help me make sense of it. If Congressional Republicans are to be believed, the most serious crisis facing our government right now is that a bunch of corporations might not be able to take advantage of tax deductions that they've been taking advantage of for quite a few years now. Yes, the end of the calendar year is coming and if it passes without the extension of these tax breaks then, poof, the deductions will be unavailable, at least for the 2014 tax year.

Bear in mind that the deductions -- in theory -- exist to give an incentive to businesses to make productive decisions. Well, the year is just about over, and companies have made whatever decisions they are going to make for 2014. That's why passing the tax cut at the 11th hour is truly nothing but a giveaway to corporations. Oh, and unlike, say, extending long-term unemployment insurance, Republicans aren't insisting that the cost be offset. I guess only government spending that goes to the little people has to be paid for.

So, on Thursday the House of Representatives voted to extend these corporate giveaways retroactively for one year. And here's Speaker John Boehner to tell us why this is a good thing: "I am hopeful today's bill will help lay the groundwork for the House and Senate to continue their work to fix our broken tax code through tax reform."

Now I'm going to say something you may not expect me to: John Boehner is right. You heard me. The tax code is broken; however (you didn't really think I'd gone over to the dark side, did you?), not in the way the speaker claims it is. Furthermore, the changes he proposes will do nothing to fix the real problem in our tax code, and in our economy more broadly. The problem that beggars a solution is the fact that corporations, by any number of measures, are earning more profits than at any previous point in our history, yet the wages of the workers they employ are dropping, and not in the good way, like when Beyoncé drops a new release.

First, let's clarify just how bad the problem is. A detailed analysis at the New York Times is worth the full read, but check out this visual:

Corporate profits have reached heights not seen since 1929 (I'm no economist, but doesn't that year ring a bell?), while wages have dropped to a level not seen since Joe DiMaggio roamed center field at Yankee Stadium. How about the effective corporate tax rate, the rate businesses actually pay on their profits? Lower than it's been since the Depression, during which there were two years of net losses for American businesses. One more thing: as worker productivity has shot up over the past four decades, virtually none of those gains have gone to workers in the form of wages.

And if you like charts, how about this one on after tax corporate profits:

And then there's the data on median household income, adjusted for inflation:

In fact, the reason why corporate profits are sky high is that employee compensation is so low, explained Jan Hatzius, Goldman Sachs' lead U.S. economist: "The strength (in profits) is directly related to the weakness in hourly wages." But remember that the real crisis is that corporate tax breaks might not get extended.

There was a deal in the works to make permanent a bunch of these corporate tax breaks, to which lame duck Senate Majority Leader Harry Reid (D-NV) apparently agreed even after Republicans withdrew their initial promise to include permanent extensions of the Earned Income Tax Credit and the Child Tax Credit as "payback" for President Obama's executive action on immigration.

Thankfully, a presidential veto threat killed that deal. This chart makes clear what would happen if those tax breaks for working people were allowed to expire in 2017, as they will according to current law. Interestingly, there were reports on Friday that Reid may not go along with John Boehner's House bill extending the corporate tax breaks for one year.

To return to my opening proposition, maybe I am an idiot. Maybe I just don't understand the intricacies of corporate high finance and whatnot. But I'm sorry, I can't accept that the major problem with our corporate tax code is that corporations need more help. I can't accept that the owners are taking home more and more while the workers take home less and less, even as they grow ever more productive on the job.

That disconnect, that disparity, is the fundamental crisis in our corporate tax code and in our economy, Mr. Boehner. This crisis has been ongoing for four decades, and it's only getting worse. That's the issue that should be front and center in Congress.