You Should Thank Historically Low Corporate Tax Rates For Boosting The Economy

Friday’s employment data was the latest of a series of data showing marked improvement in the U.S. economy. ISI counted 18 straight weeks of stronger U.S. data including better vehicle sales, same store sales, homebuilding and manufacturing.

Also, U.S. money supply is growing at a robust 10 per cent year-over-year, greasing the wheels for America’s economic engine, which showed 3.7 per cent growth in nominal GDP in the fourth quarter.

U.S. Money Supply Grew 10% Over the Past 12 Months

What was the spark that lit the bottle rocket and sent the fireball into the sky for the economy?

The Wall Street Journal recently reported U.S. corporate tax receipts as a share of profits were at the lowest level in 40 years. Corporations paid a tax rate of 12 per cent on profits during the fiscal year that ended September 30, 2011, less than half the average rate companies paid from 1987 to 2008. They employed a tax incentive known as “bonus depreciation” allowing businesses to deduct the capital that they invest back into their businesses.

At the same time, capital expenditures for American companies reached $1.5 trillion in 2011, up 10 per cent from 2010. This is the third year in a row of increased capex spending.

Trends in U.S. Corporate Capex Spending

There appears to be a multiplier effect here: As corporations pay fewer taxes, they can deploy additional capital by expanding their businesses and purchasing new fleet vehicles, machinery and data systems, which then creates and maintains thousands of jobs for American citizens.

It is unlikely the U.S. government would have achieved the same return on investment and multiplier effect on the economy.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

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