Real indicator of lower tax receipts negates ongoing fraud that U.S. companies are achieving higher earnings
Since most U.S. corporations do not have to report real total earnings thanks to their ability to function under non-GAAP accounting, it is often amusing to see when a company reports lower revenues than the quarter before, but then goes and beats their earning ‘estimates’. Â And according to a study by Marketwatch last year, this is especially prevalent for the top corporations on the S&P 500.
Marketwatch recently conducted an in-depth analysis of the top 50 companies in the S&P 500. And what they found was widespread corruption.
An overwhelming majority of Americaâ€™s blue-chip companies are purposefully promoting false earnings.
Itâ€™s a sleazy scheme that makes executives rich while masking the true financial state of corporate America.
Let me show you just how rotten things have becomeâ€¦
Traditionally, companies report earnings using â€śgenerally accepted accounting principles,â€ť or GAAP.
These standard accounting guidelines are meant to keep companies honest.
But as corporate greed and corruption have spread, companies have been turning to non-GAAP accounting measures to inflate earnings and stock prices.
Non-GAAP figures are fabricated, unaudited numbers. They allow executives to strip out expenses or charges that would lower earnings.
Lower earnings are bad news for executives who have compensation tied to a higher stock price. So many cook the books to their benefit and broadcast fake numbers to the world.
And itâ€™s happening now more than everâ€¦
As the Marketwatch report reveals, 32 of the top 50 S&P 500 companies by market capitalization promoted bogus non-GAAP numbers in their January 2016 quarterly announcements. – Daily Reckoning
And it is this ‘cooking of the books’, which is then propagandized by business networks like CNBC and Bloomberg that makes evaluating a company for investment purposes nearly impossible since its primary fundamental is often invalid.
However there is one fundamental that is quite difficult (but not impossible) to fudge, especially when it involves direct retail sales. Â And this is regarding the tax receipts taken in by the states and by the Federal government. Â And in a report from Bank of America on June 9, corporate tax receipts have fallen off a cliff through the first five months of 2017.
As Bank of America highlights something we warned about last September, according to the Rockefeller Institute and CBO, US federal income tax receipts have come in about 3% below expectations this year.
Digging deeper, the disappointment was largely in personal current tax receipts, with withheld tax receipts showing little growth over the prior two quarters. The story is a bit different for state and local governments where personal tax receipts were fairly stable, but there was a significant decline in tax receipts for corporate income.
In fact, corporate income tax receipts fell a sharp $7bn in 1Q, the biggest drop since the recession. Since corporate income tax receipts only make up about 14% of the total, there was still a modest gain in overall state and local tax receipts. While there has been particular weakness of late, the trend through last year was weak; according to the Rockefeller Institute, total state tax collections grew only 1.2% in FY16 (declined in real terms), the weakest performance since 2010. – Zerohedge
When you take into account the accelerating decline in consumer spending, coupled with the number of store closures taking place across the country in all manner of retail, it should come as no surprise that corporate tax receipts are also declining, and are making state budget deficits even more scary at a time when many of these states are now teetering on the brink of insolvency.
Kenneth Schortgen JrÂ isÂ a writer for The Daily Economist, Secretsofthefed.com,Â Roguemoney.net, and Viral Liberty, and hostsÂ the popular youtube podcast on Mondays, Wednesdays and Fridays.Â Ken can alsoÂ be heard Wednesday afternoons giving an weekly economic report on theÂ Angel Clark radio show.