A beautiful hypothesis killed by an ugly fact

A very silly report indeed from the US, about how corporations are paying their CEOs more than the corporations pay in tax. The Guardian, natch, picks up on it:

The authors calculated that the CEOs of the 50 companies that laid off the most workers since the onset of the economic crisis took home 42% more pay in 2009 than their peers on the Standard & Poor\’s 500 index.

A good example of these two trends is General Electric, which received $3.3bn in tax refunds in 2010. The company is no paragon of job creation: General Electric has closed 31 plants in the US since 2008, and let go 19,000 workers in the country. For this, CEO Jeffrey Immelt took home $15.2m last year.

Down in the comments one of the GE PR bods turns up:

Gary Sheffer from GE. This column is based on a faulty study. GE did not receive a tax refund in 2010. We have yet to file our full tax return for the year and when we do, expect a small tax liability. Our tax bill was relatively low for the year (and the previous year) because we lost $32 billion in our financial services business during the global financial crisis. Our tax rate will return to normal as those financial businesses recover. Also, we are adding jobs in the U.S., including about 8,000 new manufacturing jobs that we have announced in the last 18 months.

The study is not comparing like with like: they are comparing wages paid this year with taxes due from a previous year (the corporate income tax is paid in arrears). They are failing to not previous losses which can be offset against current profits.

And finally, in hte background, is a very silly error. They seem to be looking to large companies to be job creators. But as every fule kno, it isn\’t large companies which create jobs. It the small and the new companies which do. Large companies tend to be ever more efficient users of labour: that is, they use less labour for the same output over time.

Which is why economies which have ghastly levels of red tape around the reation of new companies also have such appalling job creation records. Like, err, Portugal, parts of the US and so on.

4 thoughts on “A beautiful hypothesis killed by an ugly fact”

  1. Heck, *every* worker at GE will have been paid more than GE paid in tax if it got a chunky rebate through unexpected losses. Even the cleaning lady who only does one morning a week.

    Fat-cat labourers sneaking off with indecent amounts of loot: it’s criminal, I tell yer.

  2. Anyway whats the problem? All that income will be being taxed as income instead of corporate profits so the the tax man won’t be out of pocket. I don’t know what the relative rates are in the US, but here in the UK I would have thought the tax man would like all the profits of a company to be paid out as high wages to the CEO, as he’d end up paying 50%+ income tax on them, vs 26% corporation tax.

  3. “As every fool knows, it isn’t large companies which create jobs”.
    Aren’t we being a bit macroeconomic here?
    Is Tesco employing fewer people each year? Is Apple, the world’s most highly valued company, laying people off all over the world? When did a small company last build a new oil refinery, nuclear power station, car factory? I guess these employ more people than when they did not exist.
    Yes, big companies squeeze labour on their existing operations to boost TFP but they also open new shops, develop new products, expand in new places.
    One reason the UK is going down the pan is that Left and right both agree that big UK companies are bad, so there are not many left to build big new things: none in the case of car plants and nuclear power stations.

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