The graph shows starkly one of the great faultlines in globalisation. The FT cites Bank of America analysts as saying that falling tax rates are the biggest factor pushing up profit margins at non-financial S&P 500 companies above the historic average:
“Roughly two-thirds of the improvement in net margins can be attributed to changes below the operating line, specifically interest expense and taxes.”
And those improvements in net margins are being shovelled, very significantly, into executive remuneration. Yet again, improvements in profitability (or executive remuneration, for that matter) are so often not attributable to executive talent, but to other factors. The trillions held offshore, uninvested, are a sign that those profits, extracted substantially from workers and ordinary taxpayers, aren’t being ploughed back into productive invesments.
A quote from the ubiquitous Thomas Piketty (and yes, some of us have read it, cover to cover):
“The reduction of top marginal income tax rates and the rise of top incomes do not seem to have stimulated productivity (contrary to the predictions of the supply side theory) or at any rate did not stimulate production enough to be statistically detectable at the macro level. (P510)
. . .
Our findings suggest that sky-rocketing executive pay is fairly well explained by the bargaining model (lower marginal tax rates encourage executives to negotiate harder for higher pay) and does not have much to do with a hypothetical increase in managerial productivity.” (p512)