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Tuesday, November 19, 2019

Tax cuts are terrible incentives

A straightforward industrial policy would be vastly preferable to abstract arguments with no means of holding corporations accountable for their failure to follow through on the theory:
In the 2017 fiscal year, FedEx owed more than $1.5 billion in taxes. The next year, it owed nothing. What changed was the Trump administration’s tax cut — for which the company had lobbied hard.

The public face of its lobbying effort, which included a tax proposal of its own, was FedEx’s founder and chief executive, Frederick Smith, who repeatedly took to the airwaves to champion the power of tax cuts. “If you make the United States a better place to invest, there is no question in my mind that we would see a renaissance of capital investment,” he said on an August 2017 radio show hosted by Larry Kudlow, who is now chairman of the National Economic Council.

Four months later, President Donald Trump signed into law the $1.5 trillion tax cut that became his signature legislative achievement. FedEx reaped big savings, bringing its effective tax rate to less than zero in fiscal year 2018 from 34% in fiscal year 2017, meaning that, overall, the government technically owed it money. But it did not increase investment in new equipment and other assets in the fiscal year that followed as Smith said businesses like his would.

Nearly two years after the tax law passed, the windfall to corporations like FedEx is becoming clear. A New York Times analysis of data compiled by Capital IQ shows no statistically meaningful relationship between the size of the tax cut that companies and industries received and the investments they made. If anything, the companies that received the biggest tax cuts increased their capital investment by less, on average, than companies that got smaller cuts.
From free trade to immigration to corporate tax cuts, the more one examines economic theories in practice, the more obviously false one observes them to be.

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94 Comments:

Blogger JovianStorm November 19, 2019 6:18 AM  

The idea is that investors, including public pension funds that invest in FedEx will at least see dividends is another reason for tax cuts.

That might have been the real reason but economics is a shell game and I can never trust anything an economist says.

Blogger McChuck November 19, 2019 6:19 AM  

Companies don't buy hardware just because they have some spare change. The buy hardware because they need it to do something.

How much more could a company like FedEx expand? They already service the entire country.

Blogger Azure Amaranthine November 19, 2019 6:19 AM  

Inverse relationship? That's more than just not following through. That's some kind of perverse incentive from the get-go.

If you wanted to use tax breaks, couldn't you at least tie them as write-offs for investing in equipment, land, and labor here in the States? No investment, no breaks. Little investment, little breaks....

Blogger Azure Amaranthine November 19, 2019 6:20 AM  

But then, I suppose they'd just buy spare equipment in order to write it off....

Blogger YehudaL November 19, 2019 6:27 AM  

A little help for the uninformed:
Tax cuts can pardon a company for what they already owe? Not just henceforth?
Besides not providing theoretical good incentives, this just incentivizes companies withholding taxes in hope of future cuts. Or did I simply misunderstand?

Blogger Monotonous Languor November 19, 2019 6:28 AM  

When you implement a policy, you should never do just one thing.

Blogger FisherOfMen November 19, 2019 6:32 AM  

Maybe Castalia House should get the rights to publish The Little Red Hen.

Blogger Azimus November 19, 2019 6:57 AM  

Has the offshoring trend been changed by this tax cut? Letting FedEx and the coal companies have a little breathing room to purchase equipment can hardly be the only reason for the cut.

Blogger Rick November 19, 2019 7:09 AM  

That Seattle Times piece is wizardry to make you think tax cuts bad, tax increases good. That zero dollar tax bill in the headline is to remind you that Trump paid zero dollars in tax one year. Not a coincidence in timing with they’re demands for his tax returns.
The govt will spend it more wisely, don’t you know?

Blogger Stilicho November 19, 2019 7:11 AM  

One of the ways the tax code has traditionally favored corporations over Americans is by allowing corporations to avoid taxes by putting profits into assets and classifying the change of asset class as a business expense. The comparable individual action would be claiming the purchase of a car as an expense on your taxes, to use just one example. The "necessities" are deductible for corporations but not for individuals.

There are exceptions and nuances to this policy, but that is the basic model. Add in the double taxation of dividends and corporations are highly incentivized to not return profits to shareholders but to do things like borrow money to buy its own stock. Perverse.

Blogger Wild Ape November 19, 2019 7:24 AM  

Flat taxes seem fair.

Blogger Harambe November 19, 2019 7:30 AM  

It's almost as if people are shitheads and will remain shitheads no matter which "system" they operate in. Everyone needs Jesus. The rest is unimportant.

Blogger ZhukovG November 19, 2019 7:33 AM  

If corporations are people, then that person is a sociopath.

Blogger D E K November 19, 2019 7:50 AM  

Don't you think that any tax on corporates will be paid at the end by the consumer with higher prices? I know it is more complicated with global corporations, but when the tax on wheat goes up the baker will charge more for the bread.

Blogger David The Good November 19, 2019 7:54 AM  

Wild Ape wrote:Flat taxes seem fair.

They'll never let a fair version happen. As soon as a flat tax scheme is unrolled, they'll start plugging in breaks for this group and that group until there's another labyrinthine mess.

Blogger Paulito November 19, 2019 7:55 AM  

@11 They seem fair, but they impact the poorest disproportionately. Also, they still allow the sort of tax law BS that is currently prevalent, by forcing the IRS to confirm everyone's "income". I believe a better solution is a simple standard yearly charge, something like $500/year, which even a homeless guy can beg up in a few days. It's a lot easier to confirm a one-time payment than it is to confirm "income", especially as the definition of "income" constantly evolves to keep up with the evolution in cheating.

Blogger bodenlose Schweinerei November 19, 2019 8:01 AM  

@14 - Is FedEx dropping their rates? Why are tax increases always passed on but tax decreases never returned?

Blogger Nate November 19, 2019 8:02 AM  

I am so confused.

Vox... why are you quoting a hit piece that was based on a hit piece and attempting to draw conclusions from it like it is factual?

The analysis was done by the freaking New York Times. The whole article is only pretending to be about FedEx. The real point of the article is "Orange Man Bad. Orange Man Tax Cut Dumb"

FedEx's CEO is so pissed off about the NYT claim he has challenged the publisher to a public debate. FedEx for example in 2017 announced they planned on purchasing 57 boeing 767-300s. That's just one type of jet they purchase. now lets see... a 767-300 costs about 182 million give or take. times 50... oh look... that's 9 billion worth of purchase orders.

The NYT lied. and the Seattle Times knows damn well they lied.. because the Seattle Times covered the big boeing purchase in 2017. It was huge news in Seattle because Boeing is huge in Seattle.

Blogger Jeff the Baptist November 19, 2019 8:03 AM  

>The "necessities" are deductible for corporations but not for individuals.

This isn't true. Corporations are filing tax returns based on being a business. If an individual does this, like if they are self-employed, then they can make these same deductions.

Blogger JG November 19, 2019 8:06 AM  

The idea that money from a tax cut will be spent uniformly in some manner by the companies receiving the tax cut is just stupid. Are economists really that stupid?

I thought the tax cut was sold as a way to get companies to hire more people, but perhaps I mis-remember.

Blogger peacefulposter November 19, 2019 8:16 AM  

It was huge news in Seattle because Boeing is huge in Seattle.

Indians are also huge in Seattle. Are they building these airplanes?

No wonder they are falling out of the sky.

Blogger Dole November 19, 2019 8:19 AM  

@20

I can confirm that economists really are that stupid.

Paul Krugman could not predict what time it is twice a day, even if he was given a clock. Sums up the profession.

Blogger furor kek tonicus ( no need to be racist, Ratchets can Karen better than anybody ) November 19, 2019 8:20 AM  

20. JG November 19, 2019 8:06 AM
Are economists really that stupid?



have you looked at how dumb ... sorry, fucking RETARDED ... the GDP formula is?

i mean, it says right there in the formula that International Trade is *bad* for national productivity.

Blogger Gulo Gulo November 19, 2019 8:25 AM  

"One of the ways the tax code has traditionally favored corporations over Americans is by allowing corporations to avoid taxes by putting profits into assets and classifying the change of asset class as a business expense."

(Facepalm) Well... no shit sherlock - its called basic business 101. The term is reinvestment something so basic to successfully running a business that its laughable that you view this as some sort of conspiracy for businesses to dodge taxes.

The day I can't deduct expenses for my businesses is the day that I go Galt and just rely on my small farm to sustain my family and closest friends. Screw the government and its legion of parasitical locusts. Think the productive class wont just shrug their shoulders and give up...just keep tightening the screws and you will soon find out.

Blogger KPKinSunnyPhiladelphia November 19, 2019 8:27 AM  

Nate wrote:

The analysis was done by the freaking New York Times. The whole article is only pretending to be about FedEx. The real point of the article is "Orange Man Bad. Orange Man Tax Cut Dumb"

FedEx's CEO is so pissed off about the NYT claim he has challenged the publisher to a public debate.



Say what you may about Fred Smith, the guy has a pair and they are large. Taking an idea from a paper that got a C+ to one of the world's great companies tells you something, now doesn't it?

Of course, the New York Times gets all outraged about the idea for a debate -- "tut tut tut, just a stunt, harumph, harumph, harump" -- because, frankly, if the shitlib low IQ minions at the Times went toe to toe with Fred and his chief tax guy, we'd have to clean up Sulzberger's innards from the debate stage.

Oh, by the way -- the Times paid ZERO tax in 2017. Where's their fucking check?

If anybody here thinks corporations are EVIL!!, the next time you buy a phone, a car, a computer, a piece of lumber, some toilet paper, remember...a corporation MADE those things.

Blogger Dole November 19, 2019 8:30 AM  

@23

There is not just one formula or method to measure GDP. The most basic GDP formula is the amount of products sold times the prices they were sold at. It turns out this is equivalent to Y=C+I+G+X-M. Trade does not affect GDP at all directly, GDP measures production.

I do not think the formula is the problem with economics. Steve Keen has good criticisms, but ultimately, the entire thing is based on ridiculous assumptions.

Blogger Gulo Gulo November 19, 2019 8:35 AM  

" Everyone needs Jesus...the rest is unimportant"

Do you know how many Christians there that have a visceral disgust for those with wealth.? And these Christians are good, solid, conservative ones that think this way. They literally think that wealth creation is mutually exclusive from a closer walk with God. Its obvious, that their saving faith has done nothing to cure them of their envy and resentment.
But...every time the Church needs an expansion or their pet charity needs money they're always willing to hit up those among the flock that they despise for some change.

Blogger ThatWouldBeTelling November 19, 2019 8:37 AM  

@8 Azimus:

"Has the offshoring trend been changed by this tax cut? Letting FedEx and the coal companies have a little breathing room to purchase equipment can hardly be the only reason for the cut."

You've got good instincts, what everyone seems to be forgetting is that previously the USA had the highest corporate tax rates in the industrialized world, with only one or two Third World shitholes exceeding it.

There's a great deal more to be done, Peter Schweizer put it well in his book Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets, there's at least two games going on at that level. One is the protection racket, the other is a regular cycle of simplifying the tax system and then grifting money by offering loopholes to selected entities or sectors of the economy. When the whole edifice gets too ridiculous, restart with another simplification.

But starting with a sane base tax rate is essential to make any real headway in this, what companies do with that extra money is another thing.

Blogger peacefulposter November 19, 2019 8:38 AM  

There is a book on GDP written by Diane Coyle. Here are some of her problems with GDP:

1) It omits work done in the home.
2) Spending on war and health are considered equal.
3) No allowance for depreciation.
4) It measures everything produced within a country's borders regardless of who produced it or why.
5) (((Financial services))) "output" is based on interest rate spreads which is useless.

Blogger Gulo Gulo November 19, 2019 8:40 AM  

"If anybody here thinks corporations are EVIL!!, the next time you buy a phone, a car, a computer, a piece of lumber, some toilet paper, remember...a corporation MADE those things."

Amen.

Blogger Doktor Jeep November 19, 2019 8:41 AM  

Boomernomics

Blogger OneWingedShark November 19, 2019 9:17 AM  

I've come to regard "tax cuts" as lies — instead of fixing the tax-rates and policies, the government steps in and "generously" says that you only owe $80 instead of the $100… when your parents and grandparents were paying $20.

I'd much rather an honest and uniformly applied tax code than the BS withholdings, exemptions, credits, and paid-for-tax-shelters-and-exceptions.

Blogger Brett baker November 19, 2019 9:19 AM  

The tax changes were more to favor the return of manufacturing than the expansion of services. FedEx is a service provider, not a manufacturer.
That said, replacing payroll taxes with a border-adjusted value-added tax to pay for geezerfare, and taxing business receipts on a progressive basis, would be useful tax reform for TGE's 2nd term.

Blogger Johnny November 19, 2019 9:20 AM  

Actually corporations should not be taxed any at all on their earnings. For example,

Lets say you own a house and rent it out. The ordinary situation with direct ownership is that the net profits on the house rental would turn up as income and taxed as ordinary income (or should be). Next you form a corporation and make the rental property a corporate asset. Now the government will tax the corporate earnings at some rate not related to you personal income, and tax you if you do as before, take the earnings, only now taking the earnings with dividends instead of directly. Double taxation if you take the earnings. A tax rate not related to personal income if you don't.

The above is seen here as nonsense. Corporations are inherently flow through entities, and should be taxed as such. That is, you tax the owner. But then as a practical matter there are a lot of ways for a company to avoid taxation. Lots of them pay very little tax.

Blogger Azure Amaranthine November 19, 2019 9:25 AM  

"If anybody here thinks corporations are EVIL!!, the next time you buy a phone, a car, a computer, a piece of lumber, some toilet paper, remember...a corporation MADE those things."

Now remember that the word corporation means "body".

Do we need this sort of body? Yes.

Should it have a special government classification and laws? Hell no.

Blogger Azure Amaranthine November 19, 2019 9:32 AM  

"Now the government will tax the corporate earnings at some rate not related to you personal income, and tax you if you do as before"

No, that's where it falls apart. For the purposes of this corporation, you are the corporation, so no double taxing. Even if not, your pay as an employee is considered to be an expense rather than earnings for the corporation, so only you would normally get taxed on that.

Now there are situations where things can be taxed repeatedly. The first one that comes to mind involves factories at different locations producing parts to be assembled somewhere else, both stages of which can end up being taxed.

Blogger Balkan Yankee November 19, 2019 9:34 AM  

Dammit. I should have been an accountant.

I could make taxes go away.

Just. Like. That.

Blogger John Best. November 19, 2019 9:35 AM  

In the UK the HMRC overcharged Rangers FC 50 million in 2011, forcing the club in to liquidation, down to the bottom tier of Scottish football and allowing the Celtic to win loads of titles, and allowing the foreign owned clubs in England to get away with it. Its just another way to attack the nations and enforce globalism. It is obvious that the globalist companies are allowed to break laws and pay just enough tax. As the state keeps creating debt to pay for it and pays think tanks to come up with economic theories to support it. It fascinating how it all works.

Blogger OneWingedShark November 19, 2019 9:38 AM  

Azimus wrote:Has the offshoring trend been changed by this tax cut?
I've come to believe the only way offshoring is going to end is if things like RICO are applied swiftly and harshly, especially to the "too big to fail" types of companies.

Rick wrote:That Seattle Times piece is wizardry to make you think tax cuts bad, tax increases good.
You don't get it, do you? — It's the false dilemma: (1) tax cuts, or (2) tax increases.
Nowhere is tax reform considered as a possibility — and, if we're being honest, if tax-cuts are needed with any regularity (and how many have there been in the past 20–30 years) this indicates that there is a problem with the underlying tax-system and the effective-rates are too high or that there is massive corruption and such "cuts" are payoffs to increase the interested parties pocketbooks.

Wild Ape wrote:Flat taxes seem fair.
I like the set proposed here; it sets a upper limit on the tax-rate, prohibits pre-conviction confiscation, prohibits withholdings, and prohibits the Congress delegating its revenue-raising powers to any other agency.

Blogger Azure Amaranthine November 19, 2019 9:43 AM  

"I like the set proposed here; it sets a upper limit on the tax-rate, prohibits pre-conviction confiscation, prohibits withholdings, and prohibits the Congress delegating its revenue-raising powers to any other agency."

Dayum, if it does all that... it gets rid of way too much graft potential for the cognizant politicians to ever willingly permit it. Gunpoint?

Blogger OneWingedShark November 19, 2019 9:54 AM  

Azure Amaranthine wrote:"I like the set proposed here; it sets a upper limit on the tax-rate, prohibits pre-conviction confiscation, prohibits withholdings, and prohibits the Congress delegating its revenue-raising powers to any other agency."

Dayum, if it does all that... it gets rid of way too much graft potential for the cognizant politicians to ever willingly permit it. Gunpoint?

Perhaps.
What the Politicians fail to realize is that people are tired of Injustice. And I think even Trump doesn't really get it, because if he did he would have at least thrown his supporters a bone and prosecuted the rampant 2018 voter-fraud: hell, that is one no-lose scenario! Even longtime Democrats [wo are real Americans] would applaud, because Americans want a Just voting-system.

Blogger DJ | AMDG November 19, 2019 10:03 AM  

It’s not just tax cuts failing to increase corporate capital investment. It’s pretty much all government sponsored economic social engineering. ObamaCare was supposed to reduce (at a min) per capital healthcare spending while also increasing quality of primary care. Spending has increased by all measures and quality metrics of the target population have either remained stagnant or dropped.

Blogger Johnny November 19, 2019 10:04 AM  

Azure Amaranthine wrote:No, that's where it falls apart. For the purposes of this corporation, you are the corporation, so no double taxing. Even if not, your pay as an employee is considered to be an expense rather than earnings for the corporation, so only you would normally get taxed on that.

So people will know what we are talking about, I will repeat some of the original.

Lets say you own a house and rent it out. The ordinary situation with direct ownership is that the net profits on the house rental would turn up as income and taxed as ordinary income (or should be). Next you form a corporation and make the rental property a corporate asset. Now the government will tax the corporate earnings at some rate not related to you personal income, and tax you if you do as before, take the earnings, only now taking the earnings with dividends instead of directly. Double taxation if you take the earnings. A tax rate not related to personal income if you don't.

The above example is not realistic because a conventional corporation requires several owners. I didn't want to complicate the thing with many owners, (say ten people who own ten houses and consolidate them into a corporation with ten owners) so I went with the fiction of a single owner. Multiple owners would not change the fundamental situation and would complicate the model. (Don't know about C corps, have never been involved with them.)

Allowing that legally they will allow you to form a single owner corporation: If the corporation hires a person to do some repair work on the house it would turn up as an expense and corporate earnings would be net that expense. If the house is directly owned and the owner hires a person to do some repair work on the house, it would turn up in his personal income tax as an expense deducted from the earnings. Same thing. An expense either way.

If the owner of the corporation leaves the money in the cooperation it gets taxed at the corporate rate. If he takes the money out in the usual way, dividends, the earnings still get taxed at the cooperate rate. Plus the dividends will turn up in his personal income. At a reduced rate now, but double taxation anyway.

What I suggest is that the amount of tax should not change merely because the form of ownership has changed. One way is the person owns the house, the other way the person owns the cooperation that owns the house. Same thing. Exactly. Why should the tax rate change?

Blogger 351wsl November 19, 2019 10:08 AM  

"I believe a better solution is a simple standard yearly charge, something like $500/year, which even a homeless guy can beg up in a few days."

Except without drastic change in spending, your simple charge is off by a factor of 20.

4.11 trillion in federal spending divided by 330 million (every man, woman and child) is $12,454. A family of four would have a "simple" tax bill of $50K.

Now if you want to reduce the spending of the federal government to 165 billion, I'm all ears.

Blogger OneWingedShark November 19, 2019 10:18 AM  

351wsl wrote:Now if you want to reduce the spending of the federal government to 165 billion, I'm all ears.
From the link posted in @39, under the "Fiscal Responsibility Amendment" proposal:
Section V
The power of the Congress to assume debt is hereby restricted: the congress shall assume no debt that shall cause the total obligations of the United States to exceed one hundred ten percent of the amount last reported by the Secretary of the Treasury.

The "amount reported" being an annual responsibility of the Secretary of the Treasury.
…one of the nice things about that amendment is that it makes the BS the Fed does, like 'quantitative easing', impossible.

Blogger Crew November 19, 2019 10:48 AM  

And I think even Trump doesn't really get it, because if he did he would have at least thrown his supporters a bone and prosecuted the rampant 2018 voter-fraud: hell, that is one no-lose scenario!

https://www.thegatewaypundit.com/2019/11/breaking-nsc-officials-atttempted-to-remove-leaker-vindman-but-were-blocked-by-obama-deep-state-hr-head-in-white-house-letitia-lewis/

There are very few real Americans left in Congress and government, it seems.

See that name? Letitia. Not a real American!

Blogger FALPhil November 19, 2019 11:11 AM  

@34 Johnny wrote:
Actually corporations should not be taxed any at all on their earnings.

This. Take away the legal fiction that corporations are people, quit taxing them, and do not allow them to lobby (with prejudice). Solve a myriad of problems related to corruption, influence peddling, and campaign finance.

Blogger Uindo November 19, 2019 11:31 AM  

@KPKInSunnyPhiladelphia
''If anybody here thinks corporations are EVIL!!, the next time you buy a phone, a car, a computer, a piece of lumber, some toilet paper, remember...a corporation MADE those things.''

Just because the feudal lord feeds us doesn’t mean we have to like the arrangement. A person pulled the lever to stamp out the toilet paper, to mold the phone plastic etc etc. The only difference making the corporation is a piece of paper saying they won't go to jail if their group of people steal from you, poison you and they pay less(?) taxes. 'corporate' also blurs the lines of labor when you want a 100IQ US citizen making your phone instead of a 85IQ slave in India. Or wanting Joe Louisiana in charge of US Phones Inc instead of Schlomo Rosensteinburg.

It's far too late to simply repeal the income tax and roll back to tarriffs-only but I would rather corporations suffer the grabbing of government as I feel it instead of getting exemptions.

Blogger 7916 November 19, 2019 11:35 AM  

Have to do some research on what constitutes industrial policy.

Tax cuts do not drive desired results except on the consumer level. Far too much evidence in things like property tax incentives, specialized tax exemptions for state, local, or federal levels, or specialized legislation drive corruption and monopoly power.

What is significant in the story is the term "lobbying". It's not the tax policy itself that is the destructive driver, it's a chicken or egg problem. Lawmakers can be influenced with money and power from third parties, and lawmakers can legislate and make law to enhance their own power and wealth from contributions.

This is basically a continuation of a centuries old problem; in the US it manifested during the railroad boom where lawmakers were able to enrich themselves by granting and denying easements to manipulate stock prices, which drove corporations to "own" lawmakers to protect themselves, leading to the Trust era.

Don't have an easy solution, as the power to regulate drives monopoly and oligarchy.

Blogger IAMSpartacus0000 November 19, 2019 11:39 AM  

Not sure I can trust Settle Times to be unbiased. Nor can I trust FedEx but here is FedEx response to New York Times:

https://about.van.fedex.com/newsroom/statement-from-frederick-w-smith-chairman-and-ceo-of-fedex-corporation/

Blogger IAMSpartacus0000 November 19, 2019 11:46 AM  

DVD's title is a little disingenuous as he himself has admonished us to look at the numbers. I cannot say if a "tax cut" is bad or good as it depends what did we start from and what did we cut to?

Some of these stories think that because the government sent me a check then I paid no taxes, where it really is I paid to much and they are returning my money.

Again, not saying that is the case here as I dont know what FedEx paid. FedEx says they paid 10 billion over the last 5 years, I have nothing to refute that number or to even determine if that is a "fair" number.

Blogger Johnny November 19, 2019 12:02 PM  

Allowing that funds are available, for big companies or wealthy investors, the usual calculation is to come up with how much money has to be put into a project. Next they calculate as best they can the expected rate of return, discounted for time if it is in the future. For really safe project, like a well located apartment building, a return of ten percent might be enough. More risky stuff and maybe twenty percent return on invested capital might be needed. And more is always better. Tax policy can effect this but it isn't usually decisive.

Blogger WileyCoyote November 19, 2019 12:30 PM  

Corporations don't pay taxes - people do. Taxes levied on corporations are paid by consumers in the form of higher prices, workers in the form of lower wages, owners in the form of reduced dividends, etc.

See Edwin Seligman's "The Shifting And Incidence Of Taxation" for more.

Blogger Gen. Kong November 19, 2019 12:36 PM  

So let me get this straight ... a known leaker's removal was prevented by an official appointed by D'Won Mocha Messiah. This official retained her HR position under Trump despite the fact that Trump was aware from the outset that Hussein was attempting to overthrow his administration. So now we have Obama-appointed HR folks ruling on matters of national security for the Trump White House, like who is to be dismissed for leaking information.

This level of sheer absurdity suggests Trump is in charge of nothing much apart from maybe his Twitter account. He's apparently there for mere decoration while the actual orders are issued by folks like Soros or whatever Satanist is issuing order for the deep-state. Arguably a better and more convincing Kabuki-play than some of the previous follies, but a Kabuki-play still the same. So who is in fact 'the man behind the curtain'?

Blogger Johnny November 19, 2019 12:40 PM  

>>Corporations don't pay taxes - To extend this a little, there is no such thing as a property tax. Property can't pay tax, owners can. The tax on a house is a tax on the owner. Same with corporations. As property, the tax on a corporation will accrue to somebody. Who will depend on circumstance.

Blogger Stilicho November 19, 2019 1:17 PM  

"Corporations are inherently flow through entities, and should be taxed as such. "

Simply wrong. Small s-corps are flow throughs and aren't generally taxed. We are talking about c-corps, particularly the large or publicly traded variety. They are not-Americans with more rights protected by govt as a practical matter than actual Americans.

Blogger Ray - SoCal November 19, 2019 1:19 PM  

A huge issue that distorts Stock Prices is Stock Buybacks.

Blogger Stilicho November 19, 2019 1:31 PM  

"(Facepalm) Well... no shit sherlock - its called basic business 101. The term is reinvestment something so basic to successfully running a business that its laughable that you view this as some sort of conspiracy for businesses to dodge taxes. "

Don't be a boomertard. It's not a conspiracy, it is simply inequitable treatment of people in favor of corporations. The man who has to buy a car to go to work for example, would be able to deduct that expense if the tax code treated him as well as it does a c Corp. It ain't about you. You aren't Fed Ex, or Apple, or Google, or GE, or GM, etc. No one said a business should pay taxes on ordinary and necessary expenses. The fact that you think I did only demonstrates that you are too short for this ride. You don't even understand the freaking issue of being classified as a special person for preferential treatment under the tax code... when the special one isn't an actual person and actual people aren't treated equivalently.

Blogger Snidely Whiplash November 19, 2019 1:36 PM  

D E K wrote:but when the tax on wheat goes up the baker will charge more for the bread.
This is a fallacy that keeps getting repeated. It may have been true in other times, when the price was controlled by the guild or the king.
In the modern world, the baker will charge exactly as much as will maximize his profit. If the cost of flour goes up, it has no necessary effect on the willingness of the market to pay more. Perhaps people will eat potatoes rather than bread. Or go Keto. It doesn't matter. The price is set by the market, not by the cost of inputs.

Blogger Snidely Whiplash November 19, 2019 1:40 PM  

Johnny wrote:If the owner of the corporation leaves the money in the cooperation it gets taxed at the corporate rate. If he takes the money out in the usual way, dividends, the earnings still get taxed at the cooperate rate. Plus the dividends will turn up in his personal income. At a reduced rate now, but double taxation anyway.


And yet, owners will incorporate.
Why? Presumably they receive a benefit. Like, oh, I don't know, maybe the ability to commit crimes and torts and not be personally liable.

And of course, that freedom from responsibility should be gratis!

Blogger Stilicho November 19, 2019 1:44 PM  

"This isn't true. Corporations are filing tax returns based on being a business. If an individual does this, like if they are self-employed, then they can make these same deductions."

We are discussing disparate treatment c-corps versus individuals. Not small businesses. Most people are not self employed and do not own a small business.

Blogger Stilicho November 19, 2019 1:45 PM  

"If anybody here thinks corporations are EVIL!!, the next time you buy a phone, a car, a computer, a piece of lumber, some toilet paper, remember...a corporation MADE those things."

Ok Boomernomics.

Blogger 351wsl November 19, 2019 1:50 PM  

"If the cost of flour goes up, it has no necessary effect on the willingness of the market to pay more"

There are plenty of examples where the price of raw materials have a direct impact on the cost of goods or services; gasoline and oil are one such example. The cost of shipping is another common example.

In the industry I work for, electricity and scrap metal affect the price of our finished goods, to the point where it is often written into contracts.

You are correct, though, that it is not the only factor, nor is it linear, but to deny that the costs to produce is does not help determine the sale price is incorrect.

Blogger Ominous Cowherd November 19, 2019 2:04 PM  

Tax cuts cause corporations to invest ... in lobbyists and congresscritters.

Blogger Snidely Whiplash November 19, 2019 2:11 PM  

351wsl wrote:You are correct, though, that it is not the only factor, nor is it linear, but to deny that the costs to produce is does not help determine the sale price is incorrect.
You will notice that that is specifically what I did not say.

Consumers Really Pay the Tax is the Conservative version of the Labor Theory of value.

Blogger Wario's Mart November 19, 2019 2:14 PM  

This comment has been removed by the author.

Blogger Gulo Gulo November 19, 2019 2:45 PM  

"You don't even understand the freaking issue of being classified as a special person for preferential treatment under the tax code... when the special one isn't an actual person and actual people aren't treated equivalently."

Speaking of too short for this ride....I've forgotten more about starting and successfully running businesses than you will ever know.

You want a good start to equitable taxation.. shrink the fed.gov to 1/100th of its current size. Then get back to me about your anger about inequitable tax treatment and other such perceived injustices.
I get it..you're a guy who is stuck in an inflationary environment trying to make ends meet on a weekly paycheck. Sucks to be you... but equitable taxation will not save you from your pitiful existence.
As for the Boomertard dig.... a little too late on that one. My birth year was 1976

Blogger Thomas W. November 19, 2019 5:06 PM  

VD is there an ideal tax rate in your mind?

Blogger Stilicho November 19, 2019 5:46 PM  

@welsh woodsman

You know nothing about tax policy yet you have an opinion. You think that highlighting the inequities in tax treatment among c-corps and individual Americans is an argument against reasonable and necessary business expenses or in favor of big govt. Next you'll be telling us how we should "starve the beast" through tax cuts.

You make a whopper of an assumption about my personal finances to deflect from your lack of a coherent thought and to attempt to puff your own situation.

If you don't want to be mistaken for a Boomer, drop the retarded Boomernomics. "Muh corporation" or "Muh deduction" are not a coherent argument in favor of special tax treatment of mega corporations. Never go full Boomertard. I understand that you think denying equitable treatment to individuals somehow protects deductions you employ. You are simply wrong. Nor is this discussion about you.

I don't care if you think you smell roses while huffing your own farts, but it annoys everyone with an IQ above room temperature when you insist on sharing.

Blogger map November 19, 2019 6:05 PM  

Tax cuts are very important for economic growth because, for capital expenditure especially, taxes are considered a cost that have to be accounted for if a project is going to be green-lit. In finance, projects are undertaken based on the net present value of discounted cash flows. Estimates of net cash flow from a project are discounted against a prevailing return in an alternate investment. Furthermore, that net cash flow is affected by tax cuts. Only after NPV is determined positive does the “financing” of finance come into play.

So, Trump reducing the capital gains tax rate from 35% to 21% is huge, since it represents a 40% increase in after-tax profits. This changes the return to each marginal dollar invested. Projects that were marginal or in the red got in the green and were undertaken because of tax cuts.

What, however, is the lying financial press ignoring? It is ignoring The Federal Reserve.

Starting a month after Trump was elected, the Federal Reserve started raising the federal funds rate. Under Obama, the Fed kept the federal funds rate a 0.25%. Under Trump, they kept raising throughout his presidency until the ffr hit a rate of 2.5%. This is a 1,000% increase in the fed funds rate over what Obama faced.
What effect does this have? The federal funds rate and the prime rate move together. There is a 3%-point spread between the two. This means that the prime rate went from 3.25% under Obama to, at its peak, 5.5% under Trump. This is a 70% increase in borrowing costs. This means that the Fed was altering both the discount factor in determining the net present value of a discounted cash flow, and it was increasing the cost of borrowing for the highest quality creditor. Basically, the Fed was short-circuiting the fiscal policy of the Trump tax cuts with the monetary policy of raising interest rates. This severely curtailed the demand for borrowing, which is why you see falling interest rates and increasing bond values in the secondary market.

The financial press completely ignores Fed decision-making. The Fed completely kinked the yield curve in Treasuries, where the yield curve inverted from the 1-month to the 7-year, and then rose from the 7-year to the 30-year, with the 30-year having the same interest rate as the 1-month. That is how much damage the Fed caused to credit markets and that is why you are not seeing the kind of capital expenditure that leads to GDP growth and increases in wages and employment, although wages and employment have increased because of Trump’s tax cuts.

The Fed was responsible for crashing the housing market in 2008 and the NASDAQ in 2001, and yet everyone talks about bad loans and overpriced housing and irrational exuberance when none of this was actually happening.

Trump was the first president to actually criticize the Fed…otherwise the Fed would have raised the fed funds rate about 3.25% and we would have had a stock market crash and a major recession by now.

Tax policy is very important in maintaining a viable business environment.


Blogger map November 19, 2019 6:06 PM  

The whole reason why companies have resorted to share buybacks and dividend payments is because capital expenditures are such a wildcard, given they are affected by monetary and fiscal policy.

Blogger map November 19, 2019 6:19 PM  

Stilicho wrote:There are exceptions and nuances to this policy, but that is the basic model. Add in the double taxation of dividends and corporations are highly incentivized to not return profits to shareholders but to do things like borrow money to buy its own stock. Perverse.

First, double taxation of dividends ended in 2004. This was a huge boon and essentially cut taxes on returns to capital. Second, share buybacks are a very important part of returning profits to shareholders. This is because share buybacks can be implemented any time, whereas dividends have to be rolled out carefully. Dividends are paid for out of retained earnings, so they slightly reduce share prices when they are declared. Furthermore, when dividends are cut, they can wreak havoc on share prices in ways that share buybacks do not.

Remember, that share buybacks add to what is called "treasury stock." These are shares owned by the company and that contribute to the asset base of the firm as easily as any factory does, without the inherent risk.

Again, as long as monetary and fiscal policy keeps operating against companies, the kind of physical investment that increases employment and wages will get short-circuited.

Blogger map November 19, 2019 6:22 PM  

351wsl wrote:"If the cost of flour goes up, it has no necessary effect on the willingness of the market to pay more"

There are plenty of examples where the price of raw materials have a direct impact on the cost of goods or services; gasoline and oil are one such example. The cost of shipping is another common example.


This depends on the elasticity of demand. Oil, natural gas and food have highly inelastic demand, so prices will go up as these commodities go up.

Blogger map November 19, 2019 6:23 PM  

VD,

"A straightforward industrial policy would be vastly preferable to abstract arguments with no means of holding corporations accountable"

Unfortunately, we do have a defacto industrial policy. It is simply a bad one.

Blogger map November 19, 2019 6:27 PM  

Here is a 20-year history of the federal funds rate.

https://www.barchart.com/stocks/quotes/FEDFUNDS.RT/technical-chart?plot=BAR&volume=total&data=MO&density=X&pricesOn=1&asPctChange=0&logscale=0&sym=FEDFUNDS.RT&grid=1&height=500&studyheight=100

Blogger map November 19, 2019 6:38 PM  

Stilicho wrote:One of the ways the tax code has traditionally favored corporations over Americans is by allowing corporations to avoid taxes by putting profits into assets and classifying the change of asset class as a business expense.

This is not correct. The distinction is not between a business expense and an ordinary expense. Business expenses are ordinary expenses, in the sense that they have to be booked in their entirety in a single fiscal year.

The actual distinction is between a business expense and a capital expenditure. With capital expenditures, you can apply straight-line or accelerated depreciation that spreads your costs over 7 fiscal years. This basically allows companies to maintain two sets of books: one for shareholders, that is information that goes into public financial statements; and one for the IRS, which allows you to lower your taxes as much as possible.

This even applies to taxes, where high taxes can be deducted from interest rate costs. The high taxes of the Obama era actually lowered the effective interest rates that companies paid beyond the borrowing rates that were advertised. For example, if you paid a 35% rate, then you could deduct 35% of your interest costs against your taxes.

Blogger map November 19, 2019 7:05 PM  

Ok, so I use the TD Ameritrade ThinkorSwim platform so I can check these tax rates for FedEx.

Basically, the Capital IQ is misrepresenting FedEx's tax burden.

The annual tax rate for FedEx in 2018 was 32.162%. In 2017, it was 34.549%. The 21% number they get is by cherry-picking the 4th quarter result in 2018. They ignored the 40% tax rate FedEx paid in Q3. Basically, FedEx's tax rate hovers between 32-36% since 2014.

Tax rate in 2019 per quarter: Q1: 24.16%; Q2: 33.645%; Q4: 27.068%.

If FedEx paid zero in taxes it's because there was a massive increase in capital expenditure. Cash flow is $29.90 per share but free cash flow is ($1.50) This means that the company is investing heavily in capital expenditure and this is allowing them to use massive accelerated depreciation to reduce there current tax burden.

Blogger Azimus November 19, 2019 7:06 PM  

America is at a point where, if there were any justice, they should have a progressive tax on revenue and let profit be unlimited. Not for the purpose of taxing, but to create a revenue ceiling that they would not cross. Would America be better off if the largest companies were say $5 billion in revenue? Couple that with eliminating tax exemption for corporate "charitable donations" and we might be getting somewhere. Dunno. Just a thought.

Blogger map November 19, 2019 7:13 PM  

Fedex has also had a 90% drop on net income over the last year and a 23% drop in net income over 5 years.

Blogger map November 19, 2019 7:14 PM  

See, this is the lying media for you. No one should be making these kind of mistakes.

Blogger maniacprovost November 19, 2019 7:27 PM  

Corporate taxes are just a way for the rich to shift their tax burden onto everyone else. Eliminate corporate taxes and make up for it by taxing capital gains, dividends, and inheritance as regular income.

This only solves half the problem obviously, but corporate fiefdoms already exist and need a different solution. Maybe *not allowing corporate officers to live above the law*. Or how about, banning all corporate giving.

Blogger Stilicho November 19, 2019 8:18 PM  

@map dividends are not deductible for the paying company and are therefore included in its net income and subject to any tax the company may owe on net income at the corporate rate. Dividends are taxable income to the recipient (unless that recipient is in the 15% bracket or below). Dividends are taxed at a rate of 15 to 20% depending on the tax bracket of the recipient. The money represented by those dividends has been taxed at the corporate level and taxed again in the hands of the recipients. This incentivizes companies to try to find ways of increasing share price to reward shareholders instead of sharing profits more directly.

As for asset reclassification, that is the end result of depreciation deductions. Company buys an asset, depreciates the purchase price to zero and takes corresponding tax deductions. Some tax may be paid at lower capital gains rate if asset is ever sold.

Now, if that is the tax policy, we can debate the effects and advisability of it. However, if such deductions are only available to artificial creations of the state that are deemed persons for the sake of legal niceties, but aren't available to individual taxpayers, you have an inequitable tax system that creates imbalances in how the burdens of taxation are shared. Those with the best lobbyists win.

As for stock buybacks, those do not represent productive assets in any sense. It is simply a mechanism to boost share price. Such stock may conceivably be reissued, but seldom is absent a merger or acquisition deal. The accounting map is not the economic territory.

Blogger map November 19, 2019 8:22 PM  

maniacprovost wrote:Corporate taxes are just a way for the rich to shift their tax burden onto everyone else. Eliminate corporate taxes and make up for it by taxing capital gains, dividends, and inheritance as regular income.

That's a terrible idea. Taxes on capital gains and dividends need to be zero. These are taxes on risk capital that creates new businesses.

Remember part of the big lie about investment. Big business tends to be risk averse. it's not big business that these tax incentives are designed to benefit. It's new enterprises that we want to come into being to compete against the existing corporations.

Blogger Emmanuel November 19, 2019 8:26 PM  

Mr. President's economic policy is as straightforward as can be once you look at the proverbial man behind the curtain. In fact, it's the only way America has any future once the petro-dollar goes down.

https://www.youtube.com/watch?v=Kw12_sXfsJM

Blogger map November 19, 2019 8:45 PM  

Stilicho wrote:dividends are not deductible for the paying company and are therefore included in its net income and subject to any tax the company may owe on net income at the corporate rate. Dividends are taxable income to the recipient (unless that recipient is in the 15% bracket or below). Dividends are taxed at a rate of 15 to 20% depending on the tax bracket of the recipient.

Hmmm...I may be wrong about dividend. Will research.

Stilicho wrote:As for asset reclassification, that is the end result of depreciation deductions. Company buys an asset, depreciates the purchase price to zero and takes corresponding tax deductions. Some tax may be paid at lower capital gains rate if asset is ever sold.

No...it has to be a capital expenditure for it to be depreciated. For example, lets say I bought a truck to do deliveries. The cost of the truck itself is depreciable. The maintenance is not. If I change the oil, I can't depreciate the cost of the oil change. If I add shelves, fro example, or replace the engine, then those are capital expenditures and they can be depreciated.

Stilicho wrote:However, if such deductions are only available to artificial creations of the state that are deemed persons for the sake of legal niceties, but aren't available to individual taxpayers

No, those deductions are available to business. You have to have a business to do that.

Stilicho wrote:As for stock buybacks, those do not represent productive assets in any sense. It is simply a mechanism to boost share price. Such stock may conceivably be reissued, but seldom is absent a merger or acquisition deal. The accounting map is not the economic territory.

It boosts EPS beause that is the number one variable that Wall Street looks at...within reason. It is a use for cash when dividends and capital expenditure are not doable.

Blogger map November 19, 2019 8:57 PM  

Stilicho,

Things like capital gains taxes and dividends should be taxed at zero percent. income taxes should follow the Laffer curve in optimizing government revenue.

Remember, the cost of capital is not the interest rate to borrow money. The cost of capital is the opportunity cost...all the alternative uses the money has to your project. Dividend taxes, capital gains taxes, corporate taxes all increase the cost of capital. When this happens, investment shrinks, and you end up with lower employment and lower wages. Remember, in any capital expenditure, workers get paid first.

Blogger maniacprovost November 19, 2019 9:49 PM  

Taxes on capital gains and dividends need to be zero. These are taxes on risk capital that creates new businesses.

So an individual's income from stock is going to be used for investment; while the same individual's income from work is wasted on consumption. Gotcha.

If you really want to pump the stock market with tax incentives, then make all investment purchases 100% tax deductible, and all sales 100% taxable. This would tax capital gains when used for consumption, but allow eternal tax deferred reinvestment. Simultaneously eliminating all retirement accounts and the associated inefficiencies and middlemen.

But no, aside from the fact that taxation is theft and should all cease immediately, I agree with you. We want to tax consumption, not investment.

Individuals consume. Imaginary legal entities do NOT consume. Any apparent consumption is just one of their employees embezzling/abusing resources, so the consumption is really done by that individual.

So since all consumption is done by individuals.... And we want to tax consumption... Then we should only tax individuals.

Blogger maniacprovost November 19, 2019 9:52 PM  

income taxes should follow the Laffer curve in optimizing government revenue.

For the record-and I know this wasn't the point- the goal of tax policy should NOT be "optimizing government revenue."

Blogger map November 19, 2019 10:24 PM  

maniacprovost wrote:So an individual's income from stock is going to be used for investment; while the same individual's income from work is wasted on consumption. Gotcha.

This isn't how it works and it's not grounded in proper thinking. "Capital" is just wealth and we want to provide incentives to deploy wealth in the process of generating more wealth. This is through production.

Production does not happen under all conditions...only some conditions. Someone is more likely to deploy capital for that gain the more of what he reaps he ends up keeping. The social effect of this is that it generates more wealth and it provides employment and wages to labor...labor that gets paid first before the enterprise even turns a profit.

When you tax capital gains, you increase the returns necessary to get the enterprise off the ground and you make the alternative (doing nothing) more viable. If doing nothing is more viable, given the probability of failure, then no wealth is created and no labor is paid and employed.

Taxes on labor operate on the same logic. If taxes are high enough, people will choose leisure over work. You can't place high taxes on consumption without taxing the willingness of what someone at the margin will do.

So taxation principles operate on different levels. Capital put at risk suffers the potential of loss. The bigger the tax, the less likely the risk will be taken. The less production and overall enterprise you will have. IOW, taxes lower the expected return, which lowers the incident of wealth used in "capitalistic" activities. Taxation affects labor in choosing between work and leisure, which also reduces capitalistic activities.

Both result in shrinking wealth in society.

Blogger map November 19, 2019 10:27 PM  

maniacprovost wrote:income taxes should follow the Laffer curve in optimizing government revenue.

For the record-and I know this wasn't the point- the goal of tax policy should NOT be "optimizing government revenue."


Well, that is an interesting feature of supply-side economics. Arthur Laffer and Robert Mundell couched their support of capitalism and economics in terms that were not in conflict with government. This is unlike Milton Friedamn, who saw tax cuts as "starving the beast." The supply-siders saw tax cuts as optimizing tax revenue by growing the economy. The state, therefore, would have wealth it needed to provide collective goods.

Blogger OGRE November 19, 2019 11:56 PM  

the more one examines economic theories in practice, the more obviously false one observes them to be.

90% of the commenters failed to grasp this.

Blogger The Pitchfork Rebel November 19, 2019 11:59 PM  

They lost me at

"the windfall to corporations"

Newspapers have for years been floating the idea that the way to save their uselessness is to become totally and permanently tax exempt as 501(c)(3)'s.


We now have proof-of-concept

https://www.niemanlab.org/2019/11/meet-the-salt-lake-tribune-501c3-the-irs-has-granted-nonprofit-status-to-a-daily-newspaper-for-the-first-time/

I'm pretty sure the Seattle rag won't be complaining about this windfall.



Blogger maniacprovost November 20, 2019 6:40 AM  

When you tax capital gains, you increase the returns necessary to get the enterprise off the ground and you make the alternative (doing nothing) more viable.

Now repeat the exact same sentence but using "corporate taxes" instead of "capital gains."

The supply-siders saw tax cuts as optimizing tax revenue by growing the economy.

That was just propaganda. The Laffer curve is explicitly describing short term adjustments in behavior, where people choose more work versus more leisure. Technically that is economic growth, but it is not growth of the capital or technological base. The actual results in the 80s of increased tax revenue were due to underlying growth that may or may not have been tax related.

Blogger spinoza November 21, 2019 5:53 PM  

Are you talking about the Federal Tort Claims Act?

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