US corporate profit margins have never been higher. Lately it has been popular to point out that higher corporate profits have come at the expense of falling employee compensation, the graphs look like something of out Marxist propaganda poster. My guess is that this will change as the economy improves: companies will invest more to satisfy greater demand, new intellectual property will spread to competition, and higher employment will increase labor's bargaining ability.
But how do we speed this up? Because I fear that corporate investments have become not so much a place to investment money and earn dividends from their productivity, as much as a place to store wealth. As you can see below, undistributed corporate profits have never been higher.
The problem with corporations storing wealth is that it isn't nearly as good for most of us as investing in innovation and hiring employees. Some of retained earnings are socked away for tax reasons, some are the collection of high-tech companies that are past their innovative prime, but a lot of earnings are being used to buy back company stock. These stock buy backs sound good to shareholders and corporate executives, but it is a short-term maneuver that doesn't yield any long-term gain in production or profit.
As you can see below, corporate investment has increased from the depths of the recession, but it is still near historic lows. Government investment is low and declining, and household investment (usually in houses) is still pathetic.
Maybe we need to change our tax code to encourage corporations to either invest their earnings, or to pay out their profits in dividends. We could make dividend payments deductible from corporate profits, just as debt expense is deductible today. If corporate invest more, then great. If households get more dividends then that's good too because they will find a more active way to invest or spend their income than the corporations. Although in such as scenario dividend income must be taxed as ordinary income.