Nonfinancial corporations continue to do very well. Recent data from the Federal Reserve, specifically its Release Z.1 Financial Accounts of the United States, show high profits, trillions in cash, large dividend payouts and modest capital expenditures. These companies do not need more cash as an incentive to invest more — the supposed logic for the tax cuts in Congress’ reconciliation bill. They already have a lot and just choose not to invest it.
The Financial Accounts paint a financial picture of the United States. They include data on the financial flows, assets and debts of nonfinancial corporations, among other businesses on a quarterly basis. The latest data run through March 2025.
Nonfinancial corporations have been very profitable since the pandemic. My calculations show that corporate profits before taxes averaged 4.7% of total assets of nonfinancial corporations in the first quarter of this year, the same as in the last quarter of 2024. After-tax profits averaged 3.8% in both quarters. These are the highest levels since 1979 and since 1967, respectively.
Since corporate profits can fluctuate from quarter to quarter, it is also instructive to look at the business cycle average. My calculations show that the ratio of before tax profits to assets averaged 4.2% for the current business cycle that started with the onset of the pandemic in March 2020. After-tax profits averaged 3.5%. This was the highest average for before-tax profits since the business cycle that ended in the spring of 1980 and the highest average for after-tax profits since the business cycle that ended at the end of 1969. Nonfinancial corporations are more profitable than they have been in decades.
Importantly, after-tax profitability has performed better in this business cycle than before-tax profitable, compared to previous business cycles. This is in part a result of the most recent massive corporate tax cuts enacted in several ways, as the Tax Policy Center describes, under President Donald Trump in 2017.
The share of taxes out of total profits has more or less continuously declined since the 1950s, my calculations show. The decline in corporate taxes paid is particularly noticeable since the 1990s (see figure below). Nonfinancial corporations have paid on average 17.7% of their profits in taxes during this business cycle – the lowest share of any business cycle, for which these data are available.
This leaves a lot more money for corporations to do as they see fit. They have built up substantial financial coffers, for example. At the end of March 2025, nonfinancial corporations held $7.6 trillion in liquid reserves — cash — or almost 12% of their assets, according to my calculations based on the Financial Accounts. This is a drop from $7.9 trillion – 12.4% of assets – at the end of 2024. The decline followed to some degree the stock market drop in March of 2025. As the market has recovered since then, it is likely that nonfinancial corporations’ liquid reserves have gone up, too. These levels of liquid reserves relatively to assets are near record highs outside of the turbulences associated with past recessions. This is just to say that corporations already sit on a lot of financial fire power that they could invest if they wanted to.
In addition to building up their financial reserves, nonfinancial corporations have paid out large amounts to their shareholders. Corporations paid out more than half — 56.8% — of their after-tax profits in dividends in the first three months of 2025, as my calculations based on the Financial Accounts show. These amounted to an annualized amount of $1.4 trillion in the first quarter of 2025 alone, Federal Reserve data show. Dividend payouts averaged 61.1% of after-tax profits during this business cycle. This is slightly higher than in the previous two business cycles, but, more importantly, much higher than during the business cycles before the 1980s (see figure below). As the share of taxes out of profits went down and profits soared, nonfinancial corporations used a lot of their money to keep their shareholders happy.
The flip side is that corporations did not substantially increased their capital expenditures. The capital expenditures of nonfinancial corporations averaged 10.1% of gross domestic product, based on my calculations using the Financial Accounts and the Bureau of Economic Analysis’ National Income and Product Accounts. This is slightly up from an average of 9.8% in the previous business cycle and on par with the business cycle of the 1990s. That is, much stronger finances for nonfinancial corporations did not result in a significant boost to capital expenditures. Yet, more capital expenditures are the fuel for faster growth that is supposed to come from cutting taxes to corporations and high-income households.
The latest data from the Federal Reserve show a clear picture of corporate finances. Nonfinancial corporations are highly profitable. Those profits have resulted in a boost to both corporate liquid reserves and dividend payouts. But, they have not contributed to an investment boom. It is thus unclear why making it easier for corporations to get money, by giving high-income earners another outsized tax cut according to the Congressional Budget Office, would turn into more investment and faster growth this time around.
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