Date: Tue Oct 25 2005 - 17:01:26 EDT
---------------------------- Original Message ------------------------- Subject: The derivation of annual total corporate profit volume in the United States (fiscal 2002) From: "Jurriaan Bendien" <email@example.com> Date: Tue, October 25, 2005 4:15 pm ----------------------------------------------------------------------- This is essentially a folksy tale of plusses and minuses. When I was young, I used to have a cartoon where Charlie Brown asks Lucy "how do you get those figures?" and Lucy quips, "I just made them up". But as you get older, you want to see how those figures are really made up. I was interested to know, for example, how the US Bureau of Economic Analysis arrived at its aggregate corporate profit figure, which is slotted into GDP, and announced to the world with great certainty. By its own testimony, BEA starts off with an IRS figure, and therefore, I decided to look first of all at IRS data. Because fiscal 2002 (ending 30 September) is the latest year for which detailed data is available online, I took that year as example, rounding the figures to the nearest billion to assist legibility. In 2002, the IRS tax-assessed total receipts of US corporations with a positive net income (other corps obviously operate at a loss, although they disburse income) were officially estimated at some $14,250 billion, including: Business receipts $12,350 billion Interest receipts $991 billion Interest receipts on Government obligations (State and local).. $35 billion Rent receipts. $102 billion Royalty receipts $88 billion Net short-term capital gain reduced by net long-term capital loss.. $13 billion Net long-term capital gain reduced by net short-term capital loss.. $61 billion Net gain, non-capital assets.. $47 billion Dividends received from domestic corporations $13 billion Dividends received from foreign corporations.. $39 billion Other receipts.. $512 billion The total deductions of these corporations permitted by the IRS were estimated at $13,217 billion, including: Cost of goods sold $7,541 billion Compensation of corporate officers $262 billion Salaries and wages $1,362 billion Employee benefit programs $167 billion Pension, profit-sharing, stock bonus, and annuity plans $99 billion Repairs $85 billion Bad debts $98 billion Rent paid on business property $260 billion Taxes paid $283 billion Interest paid $638 billion Amortization $68 billion Depreciation $411 billion Depletion $6 billion Advertising $160 billion Charitable contributions $10 billion Net loss, non-capital assets $15 billion Other deductions $1,752 billion To obtain a figure for net receipts, the tax department subtracts total deductions from total receipts, which yields $1,034 billion. To this is added the "Constructive taxable income from related foreign corporations" (gross 54 billion) and we then obtain a net total pre-tax corporate income of $1,053 billion. Of this income, $599 billion is subject to tax. Total income tax before tax credits works out at $209 billion, and total income tax after credits $153 billion. But now BEA kicks in with the NIPA calculation, and they start off their estimation procedure with a tax-assessed IRS "Total receipts less total deductions" figure of $550.5 billion. How do they get that figure, you might ask? I do not know that exactly, except that IRS data are for fiscal years, and BEA data cover calendar years. What receipts and deductions are included here? Perhaps, they take into account the negative profits from corporations operating at a loss? Only BEA's "value added" experts know the answer. Anyway, first they add to that $550.5 billion an "Adjustment for misreporting on income tax returns" of $186.5 billion. This includes $26.2 billion worth of "Posttabulation amendments and revisions" (largely consisting of expensing all meals and entertainment, oilwell bonus payments written off, adjustments for insurance carriers and savings and loan associations, amortization of intangible assets, and tax-exempt interest income). It also includes income of organizations not filing corporation income tax returns ($33.5 billion), income of Federal Reserve banks ($23.7 billion), income of the Farm Credit System and Federal home loan banks ($3.8 billion) and income of nonprofit organizations serving business and of credit unions ($6.0 billion). Also added in are: Depletion on domestic minerals $7.5 billion An adjustment to depreciate expenditures for mining exploration, shafts, and wells $2.5 billion State and local taxes on corporate income $32.2 billion Interest payments of regulated investment companies -$100.7 billion Bad debt expense $168.0 billion Then they deduct tax-return measures of: Gains, net of losses, from sale of property $96.4 billion Dividends received from domestic corporations $68.1 billion Income on equities in foreign corporations and branches (to U.S. corporations) $108.1 billion Costs of trading or issuing corporate securities (including the imputed financial service charge paid by corporations to domestic securities dealers who do not charge an explicit commission). $21.0 billion But they then add income received from equities in foreign corporations and branches by all U.S. residents, net of corresponding payments ($155.8 billion). In this way, you obtain the NIPA aggregate "Total profits before taxes", namely $768.4 billion (about 20% of that consists of profits from abroad, and 21% are profits of the FIRE sector). To get the after-tax profit figure, they start off with an IRS "Federal corporate income and excess profits taxes" figure of $209.7 billion. They add to this "Posttabulation amendments and revisions, including results of audit and renegotiation and carryback refunds" ( -27.7 billion), as well as: Amounts paid to U.S. Treasury by Federal Reserve banks $24.5 billion State and local taxes on corporate income $32.2 billion Taxes paid by domestic corporations to foreign governments on income earned abroad $10.0 billion And they deduct from this U.S. tax credits claimed for foreign taxes paid ($43.2 billion) and "Other tax credits (including the investment tax credit) ($12.9 billion). In this way, you obtain the NIPA total for taxes on corporate income, namely $192.6 billion. Deducting this income tax from NIPA pre-tax profits, you get a NIPA "Profits after tax" total of $575.8 billion. Next, BEA calculates dividend payouts, and they start off with an IRS figure of "Dividends paid in cash or assets" which is $581.5 billion. To this figure, they first add "Posttabulation amendments and revisions (which consist largely of an adjustment to remove capital gains distributions of regulated investment companies) (-$18.9 billion), as well as the following: Dividends paid by the Farm Credit System and the Federal Home Loan banks $1.6 billion U.S. receipts of dividends from abroad, net of payments to abroad $47.9 billion Earnings remitted to foreign residents from their unincorporated U.S. affiliates $6.5 billion Interest payments of regulated investment companies -$100.7 billion And BEA then deducts "Dividends received by U.S. corporations" ($113.7 billion) and "Earnings of U.S. residents remitted by their unincorporated foreign affiliates" ( $5.0 billion). At the end of the calculation, this yields NIPA "Net corporate dividend payments" of $399.2 billion, implying an undistributed post-tax profit of $176.6 billion. Simple, eh ?! From this little exercise, which takes a couple of hours to do, you can clearly see how the profit volume can grow and shrink... depending on how you add and subtract. But what the real total profit volume is, I still don't know at this stage. If however you're seriously interested in the details of BEA methodology for calculating the profit volume, see http://www.bea.doc.gov/bea/ARTICLES/NATIONAL/NIPA/Methpap/methpap2.pdf . There's also a comparison of NIPA with Standard & Poor's profit figures here: http://www.bea.doc.gov/bea/ARTICLES/NATIONAL/NIPAREL/2001/0401cpm.p Many Marxist theoreticians try to get a "surplus value" measure by deducting a "variable capital" expenditure estimate from net value added, but if you dig deeper into the data, this obviously will no longer wash. I'm off to dinner. Jurriaan Don't know much about geography, Don't know much trigonometry. Don't know much about algebra, Don't know what a slide rule is for. But I know that one and one is two, And if this one could be with you, What a wonderful world this would be.
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