Keeping Tabs on Corporate Taxes

Earlier this week the Associated Press published a special enterprise report highlighting this year’s drastic falloff in federal revenue due to companies and individuals earning less and therefore paying less in taxes.

The AP analyzed federal tax receipts going back nearly 100 years and found that revenues hadn’t dropped so much since the Great Depression. The shortfall boosts worries about Social Security and Medicare solvency, as well as the ballooning federal deficit and how we as a nation will pay for universal health care and other proposed programs.

Interesting story, but what’s that got to do with your business beat? Quite a bit, actually. Among the AP’s findings: The amount of federal income taxes owed by corporations is down an astounding 57 percent this year.

And when taxable income drops that much, companies have to tighten their belts somehow. Some methods are obvious and tend to get a lot of coverage, like production cuts and layoffs. Others are more subtle, like squeezing price concessions out of smaller suppliers. If you cover a dominant player in your region, check with the companies that sell to them. You might not get much on the record – who wants to badmouth their best customer in public? But by developing those relationships you’ll emerge with plenty of fodder for questioning execs at the top firms.

Another measure of concern to your readers: Companies in financial trouble tend to cut dividends, the quarterly payout to investors. Not all publicly traded firms pay dividends on their common stock, but many of those who do (or did) tend to be venerable employers whose workers, retirees and local investors depend on those pennies per share to grow their portfolios or eke out cash flow. A dividend cut is huge news and well worth inquiring about if you spot a sustained earnings slump.

The flip side of the drastic drop in corporate tax revenue is what it means to those who derive their business from government contracts. (Because while the AP story only looked at federal revenue, you can be the states that levy corporate income tax are watching their incomes dwindle too. The Tax Foundation compiles information about state tax rates and other background.) As budgets are slashed, firms that build roads, expand airports and otherwise sell to public entities are going to be hurting. A round-table with major contractors in your territory – from cement companies to architects to the private shops that provide orange barrels during roadwork – could yield a gritty economic forecast piece.

One caveat: The subject of corporate taxation is controversial and most analysts have an axe to grind one way or the other. Don’t let yourself get derailed by an argument that will make readers’ eyes glaze over. Just use the data to add authority and texture to factual stories about the here and now of corporate income.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.