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How Goes The Recovery?

Posted by The Aramco Group on Tue, Feb 28, 2012 @ 20:02 PM

Thought we'd take a quick look at how the recovery, such as it is, is going.

One good sign is that employment appears to be up - at least that's what the last few monthly job reports have indicated. More people working is, for obvious reasons, a good thing.

Another good sign is that last year Home Depot's fourth-quarter profits were up 32%. That's good because Home Depot employs more than 320,000 people, and because Home Depot sells home repair and improvement products, which means that people are fixing up their homes.

The administration has announced plans to cut the corporate tax rate from 35% to 28%. This is a good thing because the U.S. has the second-highest corporate tax rate in the world according to the Organization for Economic Cooperation and Development. (Japan has the world's highest corporate tax rate at 39.54%.)

The corporate tax cut is really reduced depreciation allowances and fewer deductions. These translate to more profits, and more profitable companies pay more taxes, which increases government revenues.

Profitable companies also higher more people, who earn more money (and pay more taxes), who buy more things, which increases corporate profits.....which keeps the cycle going.

So the recovery seems to be heading in the right direction. However, reports can be twisted and manipulated, and the real key would seem to be the corporate tax cut. That would make a real difference.

Forgive me for being suspicious, but a corporate tax cut, especially of this magnitude (one-fifth) just seems to be the exact opposite of what this President would normally do.

And this is an election year.


Topics: financial recovery, corporate taxes, economic data