When the profits of a company drop, often the value of that company drops too. When a rental building adds to its operating costs (rising insurance costs, labor costs, utility costs, etc) but does not raise rents to match or cover these increases, returns on investment (ROI) dips and so too does the value of that building. The past quarter saw US corporate profits maintain strength, even while facing many headwinds.
While some may argue that reducing profits is good, maybe by elevating wages, we should be aware of the following:
1. When profits dip, tax collections on profits and incomes derived from investments dip too.
2. When incomes drop from reduced returns people spend less, resulting in lower sales tax income.
3. When property valuations dip, the real estate taxes on that property can dip too.
4. When landlords default on loans, we all pay the price for that too.
5. When profits dip, corporations (and landlords) look to cut expenses. Often labor is the biggest cost. When someone loses their job they are usually subsidized by the government (paid for by you, the taxpayer) until they find a new job.
6. When profits dip there is less capital to invest in repairs and maintenance and improvements. And each one of those components also drives employment and sales/income tax revenues.
7. Publicly traded companies are not only punished when their profits dip, but even a miss on estimates can result in massive pricing corrections (which impacts all those who own that stock, including pension and retirement plans). The pressures Wall Street imposes on not just maintaining profits but INCREASING them is intense. Maybe another subject to ponder today?
