Corporate Taxes: The False, The True and the Incredibly Stupid

Monday, April 11, 2011

Brain surgery is not rocket science to a brain surgeon.

Corporate Taxes: The False, The True and the Incredibly Stupid

Opening with the usual caveats of not attempting political commentary I always point out that ideology drives policy and policy drives economics.  It is, therefore, impossible to opine on one without regard for the other.  There are many Republicans who do not embrace the Tea Party and there are many Democrats who do not embrace the Obama administration so, while often used interchangeably, I always consider it important to acknowledge there is a spectrum of political opinion that does not always fit neatly within the Democrat/Republican liberal/conservative box.  Anyone who does not know that I am squarely in the conservative, low taxes and small government camp has never read my stuff.  That said, I make clear my observations and conclusions are based on real-life cause and effect analysis of current and proposed policy on consumer mood, employer sentiment, economic health and the investment and business climate.  How do I claim to not be making direct political commentary in spite of my earlier self-identification as a conservative?  Simple.  I don’t care what works as long as it works when it comes to policy.  I believe in every American’s right to life, liberty and the pursuit of happiness.  If a part of the pursuit of happiness includes wealth building through profit that’s great.  I loathe the vision that all wealth was ill-gotten when it is the least common of all wealth.  I despise policy that creates dependence disguised compassion, discourages independence under accusation of greed and the notion that elected officials I’ll never meet are more qualified to distribute my hard earned wealth than I am.

As promised, an article I tweeted out on April 4th, 2011 has prompted a blog post.  As those who follow me on twitter know I read a lot of content.  I tweet out content I consider to be particularly relevant, informative, entertaining and, often the most extreme form of entertainment, the hyper-stupid.  Like everybody else I react personally to much of what I read within a spectrum of pride, enrichment and gratitude to exasperation, anger and disgust.  I think this is the first time I have been moved to write what amounts to a response.  Believe me, the bar was high but this article tied so many bad concepts into such a neat little package I just had to unwrap it.

The link to the article is below.  While it is not very long my digest follows for those who don’t have time/care to read it in full.

G.E.’s LEGAL non-taxable status for 2010 in the face of a worldwide operations profit is a…wait for it…A SCANDAL.  The article above is the author’s response to the parent article in the NYT.  In short the author argues that the problem of multinational corporations not owing U.S. taxes legally cannot be solved by raising taxes on the multinational corporations.  They are, after all, too big and rich and important to fight with.  We should, instead, raise taxes on those who benefit from corporate profits.  In other words US!  We weak, nasty, greedy but easy-to-pick-on investors who receive evil profit driven dividends and capital gains should be made to pay for the non-taxable profit sins of the corporations we have the nerve to invest in.

Paragraph by paragraph, then…

1. The author moans that Jeffrey Immelt, G.E. C.E.O., was named to head the President’s Council on Jobs and Competitiveness.  When did it become a prerequisite for a savvy business leader to MAXIMIZE the tax obligations of his company?  A good executive hires tax staff to LEGALLY minimize the tax burden of a company.  It is an essential part of remaining competitive which makes it essential to staying in a position to keep and add employees.  Has our author forgotten about the payroll tax G.E., and all employers, are penalized for every paycheck they issue in this country?

2. Here we reach levels of idiocy often reserved for Biden sound bites and rarely seen in print.  He refers to a capital gain rate of 15% as “a giveaway” to the rich.  Let’s start with ‘rich’.  Rich is arbitrarily defined by whomever is using the word. This intellectually bankrupt baboon (apologies to all but the dumbest baboons) appears to define ‘rich’ as anyone who buys stock.  Is the rate of 15% ridiculous, as he suggests?  Yes. But it is ridiculously high, not low.  Corporations do not just hand out dividends.  In order to reap a capital gain or dividend you must invest in the company.  You must buy stock.  That means you have to RISK YOUR OWN MONEY.  How is the government justified in taking 15% of a return you made at your risk?  If the stock drops to a loss or the company cuts or suspends its dividend (AT&T, LU, ENE, etc) does the government turn around and offer to offset your capital loss by 85%?  Of course not.  They are willing to confiscate a double digit portion of your gain but want nothing to do with your loss.  Oh, you can use that loss to offset other income, you say?  That is the same as casinos boasting a 97% slot payout.  Many gamblers think that means they make money.  It means you can count on losing 3 cents per dollar.  The government doesn’t take risk, share risk, mitigate our risk and always comes out cash ahead.  A give away? No.  A giveaway is what government does with our 15%.  They give it to those who do not invest in order to create dependence.  That is where the outrage should be.  That is where the scandal is.

Now, about his assertion that the wealthiest 1% get two thirds of the dividends and capital gains.  Why would that be true?  Because they put the most at risk.  They also suffer two thirds of the losses.  No baboon tears here?  So, the top 1 percent is not a lot of people.  The rest of us number A LOT of folks who count on capital gains and dividends for everything from wealth building to college tuition to groceries.  We can’t go make a safe 15% on anything. But the government should be able to take 15% of our risk based return and decide how to spend it on others who take no risk at all?  OK, apologies to ALL baboons.

3, 4, 5, 6. Perhaps, medication… Our hero opens paragraph 3 by separating 2 “problems” identified but muddled in the parent NYT article and then spends 4 and 5 showing that they are not problems…for thinking people.  I will give him credit for using a compound word (footloose, para. 6).  To this guy, anyone who receives dividends or capital gains is rich, legal domestic tax minimizing strategy is a problem and wise financial policy of legally shifting profits to the lowest rate jurisdictions is something that needs to be dealt with.  Based on his ‘thinking’ we need a law enforcement crackdown on those who turn right on red after coming to a complete stop.

7.  Here we actually benefit from some observations that I would make.  Analysis and conclusions, however…  So, don’t try to battle the big multinational corporations because they are vital to domestic and foreign innovation, economic growth, investment, stability and employment.  Hey, their ability to continue to provide and enhance domestic and foreign innovation, economic growth, investment, stability and employment is based on their ability to generate ever-increasing profits, DUH (pronounced ‘DUH’).

8, 9. I do not agree that we should cut the corporate tax rate.  We should eliminate it.  Why?  Because then all multinational corporations would clamor to be here.  Why would it be good to have all those money-grubbing, greedy, evil, nasty corporations here?  A decent offset to the aforementioned (talked about earlier, Mr. Samuelson) adjectives (words used to describe other words, Mr. Samuelson) would be things like domestic and foreign innovation, economic growth, investment, stability and employment.

To listen to this guy and those like him you would believe there are two pools of people out there:   those who benefit from corporate profits (all rich) and those who are precluded from benefiting from corporate profits (all repressed and poor).  It’s simply not true.  ANYONE can invest in stock, take risk, share in upside and suffer from downside.  It’s all relative.  One man can afford 1000 shares of a stock that pays 5% and another can only afford 1 share.  They both took risk relative to their means and both make the same 5%.  What the hell did the government do to justify getting any percentage.  Why do we get zero if risk moves against, 5% if we are successful but the government gets 15% of our success?

How can we argue that lowering the corporate tax rate encouraging other corporations to come here and then soaking the people who ‘benefit’ from the corporate profits will stimulate anything?  THEY ARE ALL THE SAME PEOPLE.  Don’t you get it?  Stock in large corporations is part of the compensation package.  401(k)’s, retirement packages and pension funds all invest in other corporations.  Individuals invest in stocks in their personal portfolios.  The people who work for the corporations (yes, even top management are just employees) all benefit from a successful company.  The more profit the more employees, the higher base pay, the more raises, the more bonuses the more dividends the more investors and on and on and on.  The lowest level employee of any company can advance to the highest level of management with the proper motivation, performance, experience and education that the company will often PAY FOR.  Taking a ridiculous percentage of financial reward earned by any combination of hard work and risk is a disincentive to work hard or take risk!! If you follow my tweets and posts I won’t need to make any comment about the economists (experts) referenced at open of paragraph 9.  These are the types of ‘experts’ who keep telling us that increases in the cost of food and fuel shouldn’t count as inflation.

10. The first statement of paragraph 10 is silly, unsupported and unsupportable.  Then claiming that harming the economy by raising rates is not supported by history is a distortion similar to saying Don smoked for 30 years but it didn’t hurt him ‘cuz he didn’t die of lung cancer.

The stupid-amity to suggest that a 15% tax rate on hedge fund returns amounts to a subsidy that encourages “paper investing over real production” is beyond comprehension from one who endorses larger revenue streams for an institution, government, that produces nothing.  All a government can do is consume.  The only contribution to production is what it pays to the private sector to produce.

Now, how about those ‘unproductive’ paper assets?  Those paper assets are a favorite collateral of lending institutions whose capital our citizens and corporations rely on to continue to provide domestic and foreign innovation, economic growth, investment, stability and employment.  Just for the record, a corporation is just a piece of paper.  It is the morale, culture and performance of the people who work there that drives its value. These are the people our illustrious author and his trusted ‘experts’ recommend we penalize for working in a coordinated effort to help the overall company produce profit and, thereby, enhance their own opportunities for advancement.

11. Neither issue is scandalous, lowering taxes on one entity or group and “making it up” on another entity or group is the same net effect, disincentive.

To help the economy, simply reduce regulation, reduce taxes on everyone and everything, encourage the pursuit of profit and keep the government out of the way.  That is how America became the richest, most powerful nation on earth in less than two hundred years.  A remarkable feat accomplished not by well financed government, multinational corporations or economists theories floating out of cubicles.  It was accomplished by individuals who were told that the reward reaped by their risk and work was theirs to do with as they pleased.  What they pleased was the highest standard of living the world has ever known.  People who bear less intelligence than creatures lying on their backs at the bottom of ponds should try to keep out of it and let the rest of us carry the load.

Apologies to all creatures lying on their backs at the bottom of ponds.

We always thank you for reading and…stay tuned!

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