Fact Check: NC Congress candidate Erica Smith's tweet about corporate profits is half-true
It’s time for a fact check of North Carolina politics. This week we turn our attention to the race for the U.S. House in the 2nd District near Raleigh. Democratic candidate and former state Sen. Erica Smith last month tweeted, “Corporate profit margins are at their highest point in 70 years. Corporations are trying to blame inflation on stimulus checks. Meanwhile, they’re overcharging us for gas, medicine, and groceries, and pocketing the difference. It’s a racket.”
WFAE's Marshall Terry turned to Paul Specht of WRAL for an analysis of Smith's claims.
Marshall Terry: First, Paul, why did Smith tweet this when she did?
Paul Specht: Well, Erica Smith, you'll recall, was originally going to run for U.S. Senate. But now in that race, the Democrats have sort of consolidated support around one of the other primary candidates. That's Cheri Beasley — former state Supreme Court Justice Cheri Beasley. And so now she's running for G.K. Butterfield's seat, which is expected to be another competitive primary.
So, she's out there trying to get her name out there and this Democratic congressional primary. And so, I'm not exactly sure why she tweeted it, but she's clearly trying to make a point about why prices are high. And of course, in the news, we talk a lot about inflation and things costing more these days, so she's coming at it from a different perspective here.
Terry: Well, let's take the first line of that tweet. She wrote, "Corporate profit margins are at their highest point in 70 years." Is that true?
Specht: That part is true. And you know, that's something that really surprised us and caught our attention. Whenever a candidate or politician says or tweets something like, you know, something is the highest or the lowest or the most or the least that really gets our antennas up as fact-checkers. And it turns out that the available data supports her point.
Corporate profit margins are at their highest point in 70 years.— Erica D. Smith (@EricaforUS) December 30, 2021
Corporations are trying to blame inflation on stimulus checks. Meanwhile, they're overcharging us for gas, medicine, and groceries, and pocketing the difference.
It's a racket.
The federal government tracks corporate profits through one of its Federal Reserve branches, and it turns out that profits are the highest they've been since 1950. Bloomberg News wrote about this before the end of last year, and we link to that in our story. She absolutely has a point on this front.
Terry: Well, let's move on to the other part of the tweet where she wrote, "Corporations are trying to blame inflation on stimulus checks. Meanwhile, they're overcharging us for gas, medicine and groceries and pocketing the difference." Now, she ends the tweet by calling it a racket. So, there's a couple of different things going on there. Is any of that true?
Specht: This is where she gets into a little trouble. The line about corporate profits being their highest is true, collectively speaking, if we look at American companies or companies making money in America. Collectively, they are making more than they have since 1950. However, economists told us that it's more complicated on the ground level. It's a little unfair and oversimplistic for her to say that it's all a racket — that your local gas station is overcharging you, or that your local grocery store is overcharging you.
They said that's not necessarily the case. They said, obviously, there's been limited supply for a high demand of goods, especially since the economy has gotten back up and running as vaccines came out and the pandemic has started to wane at least a little bit and people get back to what normal life, I guess, is going to look like these days. But they said it's oversimplistic for her to say that companies are taking their customers for a ride.
A, it's not in their best interest to do that. If it gets out that companies are charging the most they possibly can and taking advantage of customers, that's obviously bad PR. But secondly, that's just not what's happened. If you look at, say, Kroger, which is the largest grocery chain in America, not counting Walmart, their profit margins these days are about 1.5%, and that's down compared to 2019, before the pandemic even hit.
So, it's just a little more complicated than Smith suggested. Yes, corporate profits collectively are at a high since 1950. But, you know, profit margins vary by industry. And just because that collective number is up does not mean that your local gas station is taking advantage of you or your local grocery store.
Terry: What did Smith say when you reached out to her about this tweet?
Specht: When she got back to us, she sent several links to articles about just how companies are making money during this pandemic. And she sent us the Bloomberg article that we cite, so, there is some smart analysis in here, and she did participate in this. It was just how she phrased the second part of this tweet that economists had an issue with.
Terry: So how did you rate these claims by Erica Smith?
Specht: We rated them half-true. Again, the first part, she is right. Government data shows that Smith is right about profit margins of companies in the U.S., collectively speaking. And economists point out that profits are high now in part because A, people do have more money in their pockets with those stimulus checks, and B, some companies — for instance, gas companies — are adjusting and trying to make up for losses that they sustained at the beginning of the pandemic.
They lost money when people stopped commuting, when they stopped traveling. That took a big toll on the oil companies. Those are things that play a role in prices. And then the part of her tweet that economists took issue with was the suggestion that this is a racket — that these companies are overcharging, which they say is not necessarily true. Companies like Kroger, their profit margin is 1.5%. That is not exactly a racket.
And again, there's so much nuance here. There may be meat companies or other companies who have raised prices, but that does not necessarily mean that your overall grocery bill is higher because these companies are taking you for a ride. Her tweet is partially accurate, but it leaves out important details that would give people a clear picture of what's happening. That's why we rated it half-true.
Terry: All right, Paul, thank you.
Specht: Thank you.