The Engine Driving the Growth of U.S. Companies
publication date: Jul 16, 2009
According to new analysis by Standard & Poors, for the first time ever, foreign income taxes paid by the 500 large companies in the S&P 500 index paid have exceeded U.S. federal income taxes paid. This surprising result occurred in 2008.
In fact, foreign income taxes paid by S&P 500 companies actually increased by $11.5 billion or 9.3%, as U.S. federal income taxes declined $43.9 billion, or 29.1%.
This is both encouraging and discouraging. The growth overseas has saved and is bolstering the U.S. economy. We are less dependent upon domestic growth for corporate profits. Those who have followed our advice this past year online (see articles in the "Preferred Portfolios and Investments" section) have benefited from our foreign fund recommendations which are positioned to take advantage of this overseas growth.
What's discouraging and challenging is making up for lessened revenue coming into federal government coffers. That's why the growing federal budget deficit is concerning given increased government spending. It also highlights the importance of corporate tax rates around the world. The U.S. has one of the highest corporate income tax rates in the world (the U.S. is second only to Japan - see chart below) so the many larger companies which can choose where they wish to do business are increasingly finding domiciles with lower corporate income tax rates.
Comparing U.S. State Corporate Taxes to the OECD
Source: OECD, http://www.oecd.org/dataoecd/26/56/33717459.xls
- In 2008, S&P 500 foreign sales increased 8.5%, while domestic sales decreased 0.3%.
- European sales represented 27.7% of foreign sales, with 9.3% coming from Canada. Asian sales decreased to 13.2% from 16.8% in 2007.
- For those companies providing detailed results, 47.9% of all sales were produced and sold outside of the United States in 2008, up from 45.8% in 2007 and 43.6% in 2006.
- While the current recession has had significant impacts on local markets, the overall trend has not significantly changed. Growth outside of the United States is expected to be greater than that of the growth within the U.S.
- The shift of labor, capital, and resources are expected to continue outside of the U.S. where a growing worldwide middle-class is emerging, even as the U.S. is viewed with much higher political stability. (This trend and associate investment trends is extensively covered in Jeremy Siegel's book, Stocks for the Long Run, which is covered in the "Book Summaries" section.)