Corporate profits are a regressive tax used to funnel money to the wealthy
If we’re to believe the mainstream media, high corporate profits are good for us all. It means that people are spending and that companies have more money to invest, which we’re told they will use to expand their operations and hire more employees — yet that’s not really how it works.
Private profits are a tax we all have to pay, but only a small percentage of the wealthiest among us really see the benefits. Today, profitability is achieved by cracking down on workers — either by firing them, reducing their benefits, or making their jobs more precarious — and keeping prices artificially high. It should come as no surprise that artificial intelligence — the technology to replace workers with computers — is being touted as having huge profit-boosting potential. Again, workers will suffer as a small few make off like bandits.
Apple’s high profits reward wealthy shareholders
Apple provides a great example of how profits are used to further enrich the wealthy from selling products with outrageously inflated prices, which is how it supports a profit margin of between 38% to 40%. That means that when you pay $649 for an iPhone 7, $260 is pure profit, or if you’re buying the new $1,799 MacBook Pro with the fancy (yet seemingly useless) Touch Bar, the profit comes to $720.¹ These products could be much more affordable, but that wouldn’t make Wall Street very happy, and Tim Cook certainly doesn’t want to disappoint his wealthy shareholders.
If we’re to believe fundamental(ly flawed) economic models, Apple’s sizeable profits should result in a lot more jobs and investment, but the company is largely taking a different path. Apple is sitting on more than $250 billion in cash — in part because it refuses to pay tax on the money it has outside the United States — and while some of that money has gone to investments, acquisitions, and a new campus that has been criticized as “straight out of the middle of the last century,” much of it has gone to boosting the stock price and enriching its shareholders, the most prominent of which is billionaire bloodsucker Carl Icahn.
Between August 2013 and January 2014, Icahn bought more than $3.6 billion in Apple stock — seriously, who has that kind of money just lying around? — and urged Apple CEO Tim Cook to begin a stock buyback, which would serve to inflate the share price and thus increase the value of Icahn’s holdings. As a result of Icahn’s influence — and presumably because the company has more money than it knows what to do with — Apple now regularly hands out dividends of more than $3 billion every quarter to its shareholders, and has spent more than $144 billion buying back its own shares, just as Icahn wanted.
Apple calls the money it funnels back to investors its “capital return program,” but William Lazonick, Matt Hopkins, and Ken Jacobson ask an enlightening question in their Marketwatch piece on Icahn and investor inequality: “how can the company return capital to parties who never supplied it with capital? […] The only time Apple Inc. ever raised money from the stock market was in 1980 in its $90 million initial public offering.”
Icahn’s money bought him influence, and that influence pushed Apple to spend a sizeable chunk of its cash hoard to enrich its wealthy shareholders and further commit to corporate tax “reform” — which means lower taxes for those not familiar with the lingo. Indeed, Apple’s new manufacturing fund is little more than a way to curry favour with Donald Trump so he’ll support a 10% tax rate when repatriating overseas earnings.
While Cook continues to do Wall Street’s bidding, Icahn announced he’d sold off his Apple stock in March 2016. His reward for holding onto it for less than three years and helping to push Apple down the road to shareholder enrichment?
Two billion dollars. $2,000,000,000. That’s a lot of zeroes, and far more than any one person should need in their lifetime, let alone as the profit from an investment in a single company.
Corporations aren’t going to save you
Apple may provide a great example of how corporate profits are used to enrich the few instead of the many, but this trend is happening on a much larger scale. Lazonick argues that share buybacks are being used to “prop up share prices at the expense of reinvesting in the business and supporting job stability and long-term growth,” which could drive the U.S. into another major recession.
If the last recession provides any indication, another would be even worse for the very people who have suffered most, at the very same time as they’re turning against the system that has abandoned them to poverty, precarity, and destitution.
The top 1% of income-earners captured most, if not all, of the gains since the recession as part of a decades-long trend of wage stagnation for most workers. Even now, with the unemployment rate at 4.4%, wages still aren’t growing, and economists aren’t really sure why, but the explanation seems rather obvious.
There was a time when workers could fight to ensure that corporate profits were shared more evenly in the form of fair wages, robust benefit packages, and dependable pensions, but due to the assault on unions inaugurated by Reagan and Thatcher, workers have lost the collective power to counter that of the ultra-rich. This is precisely why the rich now claim all the gains at the same time as the middle class has declined in nearly 90% of U.S. metro areas and no longer makes up a majority of the population.
Given this reality, it’s time to recognize that high corporate profits are not a great news story. When this money is simply used to further enrich a wealthy few, cheerleading for private profits is the same as celebrating perverse levels of income and wealth inequality, and the increasing destitution of many Americans.
Massive corporations are not our friends or allies. They are concerned only with increasing profits with little regard for the larger social impacts of the actions they take (unless they can spin it into a positive PR campaign). A further slashing of corporate tax rates and privatization of public services and infrastructure will grow the divide in our societies. The power of the wealthy is partly exerted through corporations, and the structural problems we face will not be solved by continuing to kneel at the altar of corporate profitability.
¹These calculations assume a 40% profit margin across all products, though the reality is most likely that some products have higher margins, while others will have lower. It doesn’t change the fact that Apple has very high margins and customers pay much more than what the product really costs to produce.