Corporate Profits Fall + Consumer Spending Less = Higher Taxes for You and Me

Rodney Johnson | Wednesday, August 15, 2012 >>


President Truman famously kept a plaque on his desk that read, “The Buck Stops Here.”

He understood that, as president, he was ultimately responsible for all decisions, good or bad. It’s a pity that ideal seems to have died with him.

American taxpayers today live in a bizzaro, carnival-like world where the fun house mirror has twisted, distorted and morphed that statement. Instead of, “The Buck Stops Here,” our plaque now reads, “The Bucks Leave Here.”

Every bad economic turn seems to eventually lead to a reduction in my paycheck. It’s getting old. I’m starting to feel sick to the stomach. And I want off this ride.

Corporate profits for the second quarter are less than CEOs, analysts and investors had hoped for. More importantly, third quarter guidance is lower. At the same time, consumers are slowing their spending.

So how do these dominoes eventually land on our heads?

Well, when corporate profits fall, corporations pay less in taxes. When consumers spend less, sales tax revenue declines. These two items combined make up a large chunk of the tax revenue for most states.

You remember those entities, right?

Those things that are either $1.4 trillion underfunded in their pensions (if we choose to consider the optimistic estimates) or $4 trillion underfunded in their pensions (if we use the more realistic estimates).

Those things that have repeatedly cut funding for higher education over the last five years while taking on even greater costs for Medicare and Medicaid.

Those things that, unlike the federal government, cannot borrow an infinite amount of money in a sweetheart deal with the Federal Reserve’s money creation scheme.

Well, they are now bringing in LESS income in the face of all that liability. Who do you think is going to foot the bill on this one?

If you’re shaking your head in frustrated resignation, understanding that it’s you and other American taxpayers like you, who will be “asked” to bear this burden… you got it!

The states may have slowly clawed part way back from the fiscal debacle of 2008-2010, but they’re still a far way off from a full recovery. Sure, overall revenues are just a touch higher than before the crisis, but these numbers are not adjusted for inflation.

Besides, much of the increase in revenue came through higher taxes, not through economic growth. And as we move into the second half of the year, it’s becoming apparent that what little growth we had is slowing down.

This means we can expect the financial picture for states to grow darker, scarier… requiring some mid-course adjustment to account for less tax revenue.

That’s when we could all pull our rubber Harry Truman masks out of our back pockets and, as we pay higher taxes, repeat with increasing insanity the chant, “The Bucks Leave Here.”

Rodney

 

 

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.