By Dan Calabrese
I suppose this won’t be considered happy news by the likes of Elizabeth Warren, Bernie Sanders and Alexandra Ocasio-Cortez. But the rest of us should be thrilled about it.
When corporate profits tick up a percentage point or two on a year-over-year basis, that’s a significant development. When they jump 16 percent on a year-over-year basis, that’s a monster development. If you look at news like this through a political lens, you’ll fret over “winners and losers” and that sort of thing. If you understand anything about economics and capital formation, you’ll understand that this presents a gigantic injection of new capital into the productive private sector.
Whether it’s the tax cut that did it – in whole or in part – it’s some of the best economic news we’ve heard in a long time:
U.S. corporate profits boomed in the second quarter, boosted by large tax cuts and stronger economic growth than initially reported.
The Commerce Department said its broadest measure of profits across the U.S. economy rose 16.1% from the second quarter a year earlier, the largest year-over-year gain in six years.
Taxes were a big part of the boost to the bottom line. Taxes paid by U.S. companies were down 33% from a year earlier, according to the new government data, or more than $100 billion at an annual rate.
But strong underlying economic growth was also a factor. The Commerce Department revised up its estimate of how fast the economy grew in the second quarter, to an annual rate of 4.2% from an earlier estimate of 4.1%.
If there was a soft spot, it was from the rest of the world: Corporate earnings from outside of the U.S. dropped, while domestic earnings boomed.
Everything about this is good. If you need to find a job (or a better job), then you need corporations with cash on hand so they can consider investing in an expansion of their workforce. If you want to buy products, then you’re better off when companies have cash of their own that they can invest in R&D, manufacturing and distribution. And if you’re already employed and you want more opportunity, you’re better off when your company has cash to invest in new initiatives and they can give you a chance to be part of them.
You will hear the usual moaning from the political left that corporations are “profiting on the backs of the workers.” But just because companies are profiting doesn’t necessarily mean workers are getting less. You can boost your profits by making smart, strategic investments in your workforce if that’s what you need.
The dumbest take from the media/political world is that this doesn’t help anyone because companies will just “horde the cash.” Companies don’t “horde cash.” Even if all they do is keep it in a corporate bank account, that money is being used by the bank in any number of ways. Companies do keep some cash reserve if they can (and it’s smart to do so) but they reinvest most of their capital in day-to-day operations, strategic capital investments or new initiatives.
The bottom line is this: When there’s more capital in the private sector and less in the public sector, the economy is stronger and more wealth will be created. Don’t underestimate how big this news is. It’s huge.
Dan writes Christian spiritual warfare novels and does all kinds of other weird things too. Follow all his activity by liking him on Facebook!