Corporations are preparing to cite Donald Trump’s trade war as justification for raising prices — just as they previously cited pandemic supply chain slowdowns to raise prices. It’s a familiar tactic: They want us to believe macroeconomic forces mean they have no choice but to fleece us.

However, a new Federal Reserve study notes that ever-higher prices have coincided with a sudden increase in corporate profit-taking. Those profit increases are fueled by a quest for dividend payouts to company shareholders, rather than for resources to reinvest in companies — all while employee compensation declines.

Inflation should not automatically increase profit margins — businesses may be charging more for products, but they also face higher input costs. Yet inflation has coincided with an unprecedented rise in profit margins, according to the Fed study. Whereas “profits averaged 13.9 percent of national income over the 2010-19 period,” a surge began in 2020, and by the end of 2024, corporate profits comprised more than 16 percent of national income.

At the same time, employee compensation as a share of national income decreased.

The Fed finds that “76 percent of the growth in corporate profits earned by domestic nonfinancial industries was driven by an increase in the dividends rewarding shareholders” — and just 15 percent of the excess cash was devoted to “invest(ing) in longer-term investment projects.”

In 2024, corporations paid a record $1.75 trillion in dividends, including $651 billion from US-based companies. Dividend payments more than doubled in the last sixteen years, prompted by the 2003 George W. Bush tax cuts on dividends, which mostly rewarded superrich shareholders rather than encouraging companies to reinvest.

A recent example: Stellantis laid off 900 autoworkers, then announced a $2.2 billion dividend payout.