But...but...but...I heard business needs a tax cut! And they will turn around and invest in jobs, right?
Apparently not, according to this story.
WASHINGTON (MarketWatch) -- U.S. corporate profits have increased 21.3% in the past year and now account for the largest share of national income in 40 years, the Commerce Department said Thursday.
Strong productivity gains and subdued wage growth boosted before-tax profits to 11.6% of national income in the fourth quarter of 2005, the biggest share since the summer of 1966.
For all of 2005, before-tax profits totaled $1.35 trillion, up from $1.16 trillion in 2004 and just $767 billion in 2001.
Meanwhile, the share of national income going to wage and salary workers has fallen to 56.9%. Except for a brief period in 1997, that's the lowest share for labor income since 1966.
"It's a big puzzle," said Josh Bivens, an economist for the Economic Policy Institute. "If this is a knowledge economy, how come the brains aren't being compensated? Instead, the owners of physical capital are getting the rewards."
Despite the flood of cash coming in the door, corporations are investing comparatively little in expanding their operations. Capital spending has been below average, especially considering the strength of the economy, the level of profits and the special tax breaks given to boost investment.
In the fourth quarter, business fixed investment increased just 4.5%. In the past year, investment has risen 6.8%. The growth rate has been falling for the past four quarters.
Some economists are counting on the corporate sector to pick up their investments in the coming year, to replace the economic stimulus that will be lost as the housing market cools.
Profits have been so high because almost all of the benefits from productivity improvements are flowing to the owners of capital rather than to the workers.
While profits are up 21.3% in the past year, labor compensation is up just 5.5%. After adjusting for inflation, population growth and taxes, real disposable per capita incomes are up just 0.5% in the past year.
Business is taking the money and putting it in their pocket. But I'm sure it will trickle down any second now....any second now...any second now...