There is a disconnect between companies and politics in bad times. The business of companies is to provide profits (not jobs) whereas the voting public demands that the government provide jobs and will change the Federal management political party when they cannot do so.
Under the present situation, the government is further to provide jobs at no cost to the taxpayer, a very difficult thing to do. There are those who wish to stimulate the economy by lowering personal income taxes; however, this is a very inefficient way to stimulate the economy as I have said elsewhere.*
During good times, everything is fine, companies will tend to provide jobs to increase profits, even more, the politicians get a growing workforce, and nearly everyone is happy (“nearly” because some are always left behind).
Now there are companies that will keep their workforce during bad times, at least for a while, because they feel that the training costs and startup costs outweigh the savings from letting the workforce go and shutting down some of all of their facilities, either selectively or en masse.
There are even a few companies that will keep their workforce for moral reasons and not business reasons.
The workforce is the elastic dimension of capitalism, even though many companies do all they can to minimize the size of the workforce through all sorts of automation. They will also minimize the size of their domestic workforce if they can find cheaper labor elsewhere through outsourcing. Still, it is by increasing and decreasing the workforce that companies mainly regulate their expenses.
A good example of automation eliminating jobs was when the cotton gin was invented which eliminated the need for all sorts of northern slaves to work at picking the seeds out of cotton but an increased need for slaves on plantations growing increased amounts of cotton. Thus the more difficult ones were shipped down the Ohio and Mississippi rivers to Natchez to work at growing cotton. This is where the saying sold down the river came from* * At one time, Natchez was a thriving community but is now just a small tourist town with no other industry to speak of.
There is a move again to cut the taxes on profits from foreign operations that are repatriated into the U.S. (e.g. John Chambers of Cisco).*** Right now companies must pay the difference between taxes paid to the foreign government and the taxes that would be paid if the profits were obtained domestically. It is felt that money would be brought back if the taxes in doing so were eased to the low single digits. I (who, of course, have no influence what so ever) would like to try a 5% tax on bringing foreign earnings back into the country. The danger of leaving this money overseas is that the companies will start wanting to do something with it and build factories and labs overseas rather than in this country. (The fear with encouraging the money to be repatriated is that companies would use the money to buy back stock and increase dividends, neither of which is productive and even more phonier acts. This is what happened the last time this was done in 2005 as a result of the “Homeland Investment Act”.****)
But easing the corporate tax burden on returning profits could enhance the prospect of building factories and labs in this country instead of overseas and thereby encourage some hiring if companies would cooperate. This the government could not only do at no cost to the American taxpayer, but bring in some tax revenue as well. It is felt that there is something like one or two trillion dollars of corporate profits overseas so at 5% we might be talking about $50 to $100 billion dollars of tax revenue. True this is only a baby step regarding our Federal deficit, but I think the solution is to take many baby steps and do so gradually so our system can adjust. And there could be a multiplier as well through construction of factories and labs (both of which involve labor) plus staffing such as mentioned above.
* http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html
**http://www.bigsiteofamazingfacts.com/what-does-the-expression-sold-down-the-river-mean-and-how-did-the-phrase-originate
*** http://www.msnbc.msn.com/id/39173765/ns/business-personal_finance/
**** http://www.nytimes.com/2009/06/05/business/05norris.html
Showing posts with label corporate taxes. Show all posts
Showing posts with label corporate taxes. Show all posts
Wednesday, September 22, 2010
Thursday, July 22, 2010
THE TROUBLE WITH INCOME TAX CUTS
Also see: http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html earlier from May 2010.
The trouble with income tax cuts are that they are a very inefficient way to stimulate the economy, in spite of what certain people may say. The wealthy buy Treasury bonds and notes and the middle class pay off debt. Although both are admirable, they don't stimulate the economy. The wealthy also buy things that don't stimulate our economy such a purchasing foreign bonds, personal Bombardier jets (Canada), chalets in Switzerland, and islands in the Bahamas (now also islands in Greece) though they may help stimulate the international economy. Yes, there is some investment in new initiatives, but the pay back on those that succeed (and most don't) is rarely immediate and usually takes years. Think of all the years it took Amazon.com to become profitable, for example.
My own suggestion is to let the income taxes expire (just on the wealthy if you prefer) and use some of the revenue to cut corporate income taxes (and let some go for government debt relief). This will make our companies more competitive in exports and, hopefully, cut their prices some domestically. This could lead to more profits stimulating stock prices so that the wealthy could recoup some or all of their income losses.
Slightly modified from post # 63705 in Industry Discussions/ Real Estate Investment Trusts: REITs of Motley Fool
The trouble with income tax cuts are that they are a very inefficient way to stimulate the economy, in spite of what certain people may say. The wealthy buy Treasury bonds and notes and the middle class pay off debt. Although both are admirable, they don't stimulate the economy. The wealthy also buy things that don't stimulate our economy such a purchasing foreign bonds, personal Bombardier jets (Canada), chalets in Switzerland, and islands in the Bahamas (now also islands in Greece) though they may help stimulate the international economy. Yes, there is some investment in new initiatives, but the pay back on those that succeed (and most don't) is rarely immediate and usually takes years. Think of all the years it took Amazon.com to become profitable, for example.
My own suggestion is to let the income taxes expire (just on the wealthy if you prefer) and use some of the revenue to cut corporate income taxes (and let some go for government debt relief). This will make our companies more competitive in exports and, hopefully, cut their prices some domestically. This could lead to more profits stimulating stock prices so that the wealthy could recoup some or all of their income losses.
Slightly modified from post # 63705 in Industry Discussions/ Real Estate Investment Trusts: REITs of Motley Fool
Wednesday, May 26, 2010
NO WAY OUT
The estimates of the amount of the Federal debt this fiscal year exceed the sum of the discretionary budget (which includes the DoD) by $1.55 billion to $1.4 billion, and the estimated deficit is probably a minimum number. On top of this is any deficit in entitlements which will also add to the total, and Social Security will run a deficit this year. Anything that is done to decrease the deficit will hurt someone or, more likely many someones. In addition, most cuts will also hurt some business or businesses.
For example, firing Civil servants will put people out on the streets. Their income will be less and, in addition to any strain put on their lifestyle, they will have less purchasing power, hurting local businesses and perhaps even national businesses to some degree. The same can be said for Federal contract employees, and loss of a Federal contract may endanger the whole company. It is true that Presidents Bush-41 and Clinton fired more than one million Civil Servants without causing a recess, however, the economy was in an upswing which alleviated economic problems from the number of employees out of work, i.e. they could find other work. In contrast, this economic recovery is slow to add employment so firing more Federal employees or contract workers add to the unemployment picture.
A good example with the problem of making any budget cuts was the Obama administration wanting to shut down the manned mission return to the Moon. Now in these dificult times, it seems to me that if there is any program we could dispense with it is returning man to the Moon; yet screams were heard all over the country because NASA spreads contracts over as many congressional districts as possible hurting employment and business all over the country. Of course, savings from stopping manned missions to the Moon will be only a tiny part of the Federal deficit problem, though it is a start, but it can be a major hurt to many people and congressional districts, if not states. But, can’t we do without manned missions to the Moon?
Another seemingly good cut would be to stop the subsidy to corn based ethanol. You have to do an awful lot of calculating to determine that there is any benefit at all to carbon dioxide emissions from corn based ethanol, and, if you cut down a forest to make a corn field, you come out behind. A high duty has been put on imported sugar cane ethanol from Brazil to make it uneconomic. Corn based ethanol is really just a subsidy to agribusiness. Rather than cutting back on the subsidy to corn based ethanol, the percentage of corn based ethanol allowed in gasoline has been increased from 10% to 15%.
Yet a third good move would be to prohibit earmarks. The reason is that before earmarks are passed, the congressional districts have not gotten used to the money. The worst that can happen is that unemployment and local business in the district will remain unchanged. It is not that I am heartless about the condition of the unemployed in any congressional district, but you are not going to cut the budget without pain, and to leave things as they are may just be the least painful. However, earmarks are something an individual congressman can do to justify their existence so they are going to earmarks up with most reluctance. Just ask John McCain.
There is much anger over 47% of the tax payers paying no Federal income tax. This large sum is largely due to the Child Tax Credit when parents not only get to count a child as a dependent (and take $600 per child off their income), they also get to take $1,000 per child off their income taxes. President Bush-43 increased this tax benefit from $500 to $1,000. The reason for this benefit is to increase the birthrate of the country. I have not seen any information to show this benefit has the desired effect, so this subsidy, at the vary least, could be rolled back, at least to $500, if not eliminated. What are the odds that it will be?
Lastly, adding a dollar tax to a gallon of gasoline would be beneficial in many aspects. Not only would it increase Federal revenue to some extent but should decrease importation of foreign oil and reduce pollution of the atmosphere, a trifecta. This suggestion has even been proposed by some conservatives. After all, some revenues from imported oil help finance our enemies to fight us. I believe it is most unusual, and may be unique, for a country to finance its enemies, which is what we are doing in importing oil. I do understand, however, that such a tax is very regressive for the working poor. The working poor often live very far from their places of work and cannot afford to move closer. In addition they tend to own older, cheaper, less fuel efficient automobiles which consume more gasoline per mile traveled. The usual suggestion is to use some of the increased revenue to subsidize gasoline for the working poor. Of course this subsidy will decrease the net revenue and won't decrease opolooution or imported oil as much, but it is probably the humane thing to do.
Making the simplest and most logical Federal budget cuts or revenue increases are strongly opposed which shows just how difficult cuts in the Federal budget are going to be. Undoubtedly everything I have proposed above will total less than $300 billion reduction of the Federal budget, probably much less. Thus these are only a small step toward solvency, but they would be a start. I also suspect that if such small steps as mentioned above are accomplished to partially reduce the deficit, a recession could result at least, perhaps even a depression. However, even accomplishing any of the above items is doubtful. Addressing the Federal budget deficit seems likely to not occur but, if it is addressed, a painful process will be involved hurting many people and corporations and the general economy. I hope that I am wrong, but I see no way out.
For example, firing Civil servants will put people out on the streets. Their income will be less and, in addition to any strain put on their lifestyle, they will have less purchasing power, hurting local businesses and perhaps even national businesses to some degree. The same can be said for Federal contract employees, and loss of a Federal contract may endanger the whole company. It is true that Presidents Bush-41 and Clinton fired more than one million Civil Servants without causing a recess, however, the economy was in an upswing which alleviated economic problems from the number of employees out of work, i.e. they could find other work. In contrast, this economic recovery is slow to add employment so firing more Federal employees or contract workers add to the unemployment picture.
A good example with the problem of making any budget cuts was the Obama administration wanting to shut down the manned mission return to the Moon. Now in these dificult times, it seems to me that if there is any program we could dispense with it is returning man to the Moon; yet screams were heard all over the country because NASA spreads contracts over as many congressional districts as possible hurting employment and business all over the country. Of course, savings from stopping manned missions to the Moon will be only a tiny part of the Federal deficit problem, though it is a start, but it can be a major hurt to many people and congressional districts, if not states. But, can’t we do without manned missions to the Moon?
Another seemingly good cut would be to stop the subsidy to corn based ethanol. You have to do an awful lot of calculating to determine that there is any benefit at all to carbon dioxide emissions from corn based ethanol, and, if you cut down a forest to make a corn field, you come out behind. A high duty has been put on imported sugar cane ethanol from Brazil to make it uneconomic. Corn based ethanol is really just a subsidy to agribusiness. Rather than cutting back on the subsidy to corn based ethanol, the percentage of corn based ethanol allowed in gasoline has been increased from 10% to 15%.
Yet a third good move would be to prohibit earmarks. The reason is that before earmarks are passed, the congressional districts have not gotten used to the money. The worst that can happen is that unemployment and local business in the district will remain unchanged. It is not that I am heartless about the condition of the unemployed in any congressional district, but you are not going to cut the budget without pain, and to leave things as they are may just be the least painful. However, earmarks are something an individual congressman can do to justify their existence so they are going to earmarks up with most reluctance. Just ask John McCain.
There is much anger over 47% of the tax payers paying no Federal income tax. This large sum is largely due to the Child Tax Credit when parents not only get to count a child as a dependent (and take $600 per child off their income), they also get to take $1,000 per child off their income taxes. President Bush-43 increased this tax benefit from $500 to $1,000. The reason for this benefit is to increase the birthrate of the country. I have not seen any information to show this benefit has the desired effect, so this subsidy, at the vary least, could be rolled back, at least to $500, if not eliminated. What are the odds that it will be?
Lastly, adding a dollar tax to a gallon of gasoline would be beneficial in many aspects. Not only would it increase Federal revenue to some extent but should decrease importation of foreign oil and reduce pollution of the atmosphere, a trifecta. This suggestion has even been proposed by some conservatives. After all, some revenues from imported oil help finance our enemies to fight us. I believe it is most unusual, and may be unique, for a country to finance its enemies, which is what we are doing in importing oil. I do understand, however, that such a tax is very regressive for the working poor. The working poor often live very far from their places of work and cannot afford to move closer. In addition they tend to own older, cheaper, less fuel efficient automobiles which consume more gasoline per mile traveled. The usual suggestion is to use some of the increased revenue to subsidize gasoline for the working poor. Of course this subsidy will decrease the net revenue and won't decrease opolooution or imported oil as much, but it is probably the humane thing to do.
Making the simplest and most logical Federal budget cuts or revenue increases are strongly opposed which shows just how difficult cuts in the Federal budget are going to be. Undoubtedly everything I have proposed above will total less than $300 billion reduction of the Federal budget, probably much less. Thus these are only a small step toward solvency, but they would be a start. I also suspect that if such small steps as mentioned above are accomplished to partially reduce the deficit, a recession could result at least, perhaps even a depression. However, even accomplishing any of the above items is doubtful. Addressing the Federal budget deficit seems likely to not occur but, if it is addressed, a painful process will be involved hurting many people and corporations and the general economy. I hope that I am wrong, but I see no way out.
Friday, May 7, 2010
EFFECTIVENESS OF TAXES
Modified from a post on the Motley Fool
The reasons often given for decreased personal income taxes not being effective is that only a small portion of the decreased taxes for the wealthy go into productive things and even this small percentage often takes years to be effective. For example, Greenspan worried that too much of the decreased income tax benefits the wealthy received would be invested in Treasury securities and that the tax savings of the lower classes (including middle class) would be used to pay off debt (with which they were loaded). Also the "windfall" tax benefit of the wealthy often goes to things that may benefit the global economy but have no or little benefit to the U.S. - such as purchasing existing stock, chalets in Switzerland, Canadian bombardier personal jets, islands in the Bahamas, and the like. Thus decreasing income taxes is an inefficient way to stimulate the economy.
I might add that buying more existing stocks is also not productive as once past the IPO (initial public offering), the corporation gets no more benefit from future trading of the stock.
I tend to agree with Paul O'Neill when he was Secretary of the Treasury that a better tack would have been to lower the corporate income tax. This would have given our corporations some advantage in international trade and might even decrease the price of goods sold domestically, thus stimulating demand. But there are few votes in lowering corporate income taxes so O'Neill was eventually canned (He tended to also make statements that were true enough but were impolitic.).
It might still be possible to do some decreasing of the corporate income tax. My suggestion is to take some* of the increased revenues from letting the Bush-43 personal tax cuts on the wealthy expire** and use them to decrease the corporate income tax. If the corporations used the lowered corporate taxes to reduce the prices on domestic goods, addition revenues could result from increased consumption. This would also stimulate the competitive nature of U.S. corporations in international trade, and increased revenues just might result. Among other things, if corporate profits should increase as a result, the price of stocks would correspondingly increase and enrich stock holders which could alleviate the increased personal income taxes on the wealthy.
*I say "some" of the increased revenues because some should also be used for debt reduction.
**Contrary to the claims of some, there is little indication that increased income taxes lower government revenues. President Bush-41 raised income taxes as did President Clinton. Although there were hysterical claims at the time that these would ruin the economy, the economy fluorished during the 1990s, and there was even positve cash flow the last four years of the Clinton Administration. George W. Bush lowered the tax rates, and there was no growth in employment or the economy in the first decade of the 21st century.
The reasons often given for decreased personal income taxes not being effective is that only a small portion of the decreased taxes for the wealthy go into productive things and even this small percentage often takes years to be effective. For example, Greenspan worried that too much of the decreased income tax benefits the wealthy received would be invested in Treasury securities and that the tax savings of the lower classes (including middle class) would be used to pay off debt (with which they were loaded). Also the "windfall" tax benefit of the wealthy often goes to things that may benefit the global economy but have no or little benefit to the U.S. - such as purchasing existing stock, chalets in Switzerland, Canadian bombardier personal jets, islands in the Bahamas, and the like. Thus decreasing income taxes is an inefficient way to stimulate the economy.
I might add that buying more existing stocks is also not productive as once past the IPO (initial public offering), the corporation gets no more benefit from future trading of the stock.
I tend to agree with Paul O'Neill when he was Secretary of the Treasury that a better tack would have been to lower the corporate income tax. This would have given our corporations some advantage in international trade and might even decrease the price of goods sold domestically, thus stimulating demand. But there are few votes in lowering corporate income taxes so O'Neill was eventually canned (He tended to also make statements that were true enough but were impolitic.).
It might still be possible to do some decreasing of the corporate income tax. My suggestion is to take some* of the increased revenues from letting the Bush-43 personal tax cuts on the wealthy expire** and use them to decrease the corporate income tax. If the corporations used the lowered corporate taxes to reduce the prices on domestic goods, addition revenues could result from increased consumption. This would also stimulate the competitive nature of U.S. corporations in international trade, and increased revenues just might result. Among other things, if corporate profits should increase as a result, the price of stocks would correspondingly increase and enrich stock holders which could alleviate the increased personal income taxes on the wealthy.
*I say "some" of the increased revenues because some should also be used for debt reduction.
**Contrary to the claims of some, there is little indication that increased income taxes lower government revenues. President Bush-41 raised income taxes as did President Clinton. Although there were hysterical claims at the time that these would ruin the economy, the economy fluorished during the 1990s, and there was even positve cash flow the last four years of the Clinton Administration. George W. Bush lowered the tax rates, and there was no growth in employment or the economy in the first decade of the 21st century.
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