The Washington Post's top of the Business Section article on Sunday, 16 December is headlined "How have corporations spent their tax cut windfall?" Thomas Heath, the author, notes that many experts believe that corporations should spend the money no longer taken from them by force to build new facilities, buy equipment, invest in R&D, hire more employees, and pay their employees more. Stock buybacks and higher dividends for stockholders are rather immoral and not in the spirit of the tax cut law.
You see, the government taxes a business, forcibly depriving it of the income it worked hard to earn in a competitive global economy. The government thereby gains the moral right to expect the company upon the government's graciously deciding to take a bit less of the company income to spend that income according to the government's wishes. Those wishes require that the company creates more and better jobs and does so in a way that is as obvious to the voters as possible.
What has become of the money that companies are now able to keep since the tax cut last year? Business investment by Standard & Poor's 500 largest public corporations on new equipment and factories is up 19% in the first three quarters of 2018. Research and development spending increased by 34%. A Federal Reserve statistic shows that independent businesses in general increased business investment by 16% so far this year, which is the highest increase since 1993. For years, capital expenditure by business has been very weak and productivity growth has been less than 1% per year. Private sector employee average earnings are up 2.8% in 2018, after many years of stagnation under the Obama Regime.
The 2018 increases in business capital expenditures, R&D, employee earnings, and the expected increases in productivity should make Americans very happy. Unless you are a Democrat socialist, in which case you bemoan the fact that stock buybacks cost companies $579 billion in the first 3 quarters of 2018. This will set a new record for a year, replacing the record of 2007, just prior to the Great Recession. Wisconsin Senator Tammy Baldwin says "It's just wrong for big corporations to pocket massive, permanent tax breaks and reward the wealth of top executives with more corporate stock buybacks, while workers are given pink slips and face layoffs." Never mind that unemployment is at a record low, that millions of open positions cannot be filled with qualified workers, and that average employee earnings are up 2.8% this year. Never, ever allow the facts to get in the way of a very emotional argument for the villainy of businesses.
The left also complains about the fact that dividends to shareholders this year will set a record previously set in 2017.
There is a very unrealistic expectation in the criticisms of the Democrat socialists which we are not supposed to notice. The management of a large corporation now able to keep enough of its earnings to contemplate building a new facility first has to evaluate a number of purposes for that facility, where it will be built, design it, get building and environmental permits, find and hire the people to build it, evaluate and purchase the equipment to put into the facility, and find and hire the people to be employed in the facility. If you have just had a substantial change in the parameters under which your business operates, you are also likely to have to hire more managers to make all of these decisions and kick this whole process into gear. How much of this process can be accomplished in the first 3 quarters of operations under the new tax conditions?
Consider R&D. You have long been doing less R&D than your company should have been doing because too much of your company earnings were taxed away and the regulatory environment was too expensive. During the Great Recession and the numbingly glacial recovery, you released many company scientists and engineers or did not expand their numbers. Your company did not invest much in analytical equipment, your laboratories, the training of your technical experts, prototyping capabilities, and your forward-looking plans for R&D were scaled to your very modest means to do R&D. Now conditions have changed. You want to invest in R&D, but you have to figure out what directions to explore and develop with your greater R&D effort. You consult with your technical people, make decisions on new directions based on evaluations of markets and technical possibilities, figure out what laboratory equipment is needed, evaluate the instruments available from vendors, prepare facilities for their installation, and hire more people to operate the equipment and to solve the technical problems. By the way, the people with the brains, the dedication, and the training for these R&D tasks are hard to find. What fraction of this process is likely to be completed within 9 months of a changed tax environment?
So, while your company is trying to become more productive and to offer new products and services, but is limited on the rate of its spending by these limits of time and resources, what do you do with your suddenly increased available funds? Rationally, you use it for some combination of paying back debts, buying back stock, and offering improved dividends to your shareholders.
Not only is this rational from the company viewpoint, but it is hardly bad for the economy. Lower company debt makes companies more able to weather future downturns and to minimize the layoffs of valuable employees when a downturn occurs, as they always will. The buyback of stock, puts more money in the hands of investors who will then either spend that money or invest it in other firms that need that investment. The increases in dividends help many investors to be able to spend more money in the economy and helps pension funds to be less unstable, as so many of them are. To be sure, some of this money will go to foreign investors. Some of these foreign investors will put their money back into US investments because our economy is about the best in the world. Some will leave our economy. But, if we suppose that money had been left in the hands of the government, what fraction of it would have been utterly wasted and gone to not only unproductive use, but to uses that cause our national productivity to have negative components? Yes, the Democrat socialists believe that government spending is the Gold Standard for the good use of our money. But you have to be loony to think that is the reality.
Showing posts with label tax cut. Show all posts
Showing posts with label tax cut. Show all posts
17 December 2018
07 May 2016
Donald Trump Again Proves He is Not Trustworthy
Donald Trump has stated that it is right for a businessman to do anything to make money that is not illegal. Such an attitude is the basis for many claims that big government is justified to control unethical big businesses. He has tried to steal the property of others by using eminent domain for his benefit. He has long made most of his campaign contributions to Democrats to buy a position as one of their favored special interests.
Within two days of Senator Ted Cruz suspending his campaign for the Republican nomination for the presidential race in 2016, Trump has now
When Americans persist in not understanding the principles of legitimate and limited government, they will be ruled badly and arrogantly by special interests.
Within two days of Senator Ted Cruz suspending his campaign for the Republican nomination for the presidential race in 2016, Trump has now
- Stated that he will not follow through on his tax-cut plan.
- Said that he would not oppose an increase in the minimum wage.
- Will seek campaign contributions.
- Appointed a former Goldman Sachs partner, George Soros hireling, and major Hillary Clinton donor to head up his campaign fund.
When Americans persist in not understanding the principles of legitimate and limited government, they will be ruled badly and arrogantly by special interests.
07 June 2008
Taxes, the Economy, and Solving Problems
There is a mind-set that any problem at large in one's society should be addressed with new laws establishing new redistributions of income either through taxes or by mandating required actions. Often these problems are viewed as righting an inequality, though with the elevation of environmentalism into a religion, especially among those formerly of the socialist political spectrum, drastic new programs and taxes are being proposed simply to punish human beings for exhibiting the ability to make the world a better place for human beings. Actually, government and tax policy has long been about punishing human beings for exhibiting productive ability. Those with ability seem to earn more envy than appreciation from a plurality of voters.
What is the rational approach to determining the scale of government and taxes? It has long been clear that minimizing both provides maximal freedom, maximal creative and productive output, and allows people ever-increasing resources to devote to human problem solutions. But this is not a viewpoint people keep clearly in mind as they approach any given problem. This rational, principled perspective is usually lost when it is most needed.
As I have noted several times, one of the undoubted reasons for the present economic slowdown has to be the uncertainty that businessmen have to have about future tax rates in the United States. Many business investments have payback periods extending many years into the future. They require a great deal of capital being invested over the course of a year or two or more, which is justified only if a profit can be reasonably anticipated from the investment over a number of years after the losses of the first year or two. Some investments have a shorter payback time, but very many require years. Consequently, with the Bush tax cuts expiring in 2011, businesses must be worried about their calculations on anticipated net income for investments being made now and next year. With the Democrats in firm control of the Senate and the House of Representatives and the expectation that they will strengthen their grasp of power in those bodies in the 2008 elections and grab the Presidency with a far-left socialist radical, businessmen have to be figuring that future taxes will be heavier than they are now. This rules that many investments that would have been profitable with present tax law, will not be profitable with the expected tax increases. Companies respond by buying fewer capital goods than they would have and by hiring fewer new employees.
It is simple. The calculations on any given investment decision are anything but simple, especially given that one does not know what the future tax structure will be and what future mandates will exist. This uncertainty is always present to too large a degree with activist, expanding government. But with an activist socialist presidential candidate whose stated program is "Change you can believe in", uncertainty is at a maximum. Then there is the huge power grab over most every aspect of our lives represented by the Warner-Lieberman Energy Security Act's crushing fuel taxes and their uncertain administration. Only idiots would not refrain from making many investments in this climate. That this climate of uncertainty (climate change?) depresses investment is what is very simple to understand.
So, let us examine a commentary by Ed Feulner, President of the Heritage Foundation, on some aspects of our tax policy and its effects. Five years ago, key provisions of the 2001 tax cut were accelerated to take effect in 2003, including doubling the child tax credit to $1,000, ending the marriage penalty, expanding the earned income credit for married joint filers, a new 10% tax bracket for low-income taxpayers, reduced marginal tax rates for other income brackets, the top capital-gains tax rate was cut from 20% to 15%, and the tax rate on dividends was reduced from as high as 39.6% to 15%. The result was that the economy added jobs every month from August 2003 until January 2008. 8 million new jobs were created and economic growth rates more than doubled.
In the static economy mindset, the tax cuts reduced taxes by $1.3 trillion from then through the end of 2007. But actually, because the economy grew so much more and investors could invest more wisely with lower tax rates, the government collected more tax revenue, not less. In 2003, federal revenues were 16.1% of GDP, but by 2006 they were 18.6% of a larger GDP than we would have had with the original higher tax rates! With lower tax rates, Federal government tax revenues increased from $1.77 trillion in 2003 to $2.41 trillion in 2006. This is a 36% increase in Federal revenue in 3 years! Despite that huge increase, Democrats act as though government was starved for money to spend on essential programs.
It is a marvelous thing when you can have a tax cut that leaves more money in the hands of the people and at the same time gives more money to the government to tackle such issues as it should, or more likely that it should not. This additional money paid for the war in Iraq and Afghanistan and many, many unsound Congressional giveaways. There were other effects also. The top 5% of income earners paid 59.7% of all income taxes by 2005, which was the highest % paid by that group since such records were kept in the mid-1980s. The cut in the double-taxation capital-gains tax resulted in a doubling of capital-gains tax revenues.
So, why would Democrats want to end the Bush tax cuts? It sure is not so that they will have more tax revenues to help the poor and the disadvantaged with. No, it is purely for demagogic reasons. They wish to pose before an ignorant public as the champions of the poor and the disadvantaged by piling more taxes on those who are already paying the vast majority of income, capital-gains, and dividend taxes. If they really were champions of the poor and disadvantaged groups, they would leave these tax cuts in place.
Worse yet, many of them back the Lieberman-Warner carbon tax bill which will raise taxes still higher and produce huge uncertainties for business planning. It will give Congress hugely greater power and give them many more opportunities to milk money out of lobbyists for all the groups who use energy and want special exemptions, energy credits, or who want alternative fuel and energy efficiency development monies. What a bonanza of power for Congress, while the people suffer economic stagnation and the end of many of their dreams. How many diseases will not be cured, how many products that enrich our lives will not be developed and produced, how many homes will not be bought, and how many jobs will be lost in America to India and China where a carbon tax will rightfully not be adopted?
What is the rational approach to determining the scale of government and taxes? It has long been clear that minimizing both provides maximal freedom, maximal creative and productive output, and allows people ever-increasing resources to devote to human problem solutions. But this is not a viewpoint people keep clearly in mind as they approach any given problem. This rational, principled perspective is usually lost when it is most needed.
As I have noted several times, one of the undoubted reasons for the present economic slowdown has to be the uncertainty that businessmen have to have about future tax rates in the United States. Many business investments have payback periods extending many years into the future. They require a great deal of capital being invested over the course of a year or two or more, which is justified only if a profit can be reasonably anticipated from the investment over a number of years after the losses of the first year or two. Some investments have a shorter payback time, but very many require years. Consequently, with the Bush tax cuts expiring in 2011, businesses must be worried about their calculations on anticipated net income for investments being made now and next year. With the Democrats in firm control of the Senate and the House of Representatives and the expectation that they will strengthen their grasp of power in those bodies in the 2008 elections and grab the Presidency with a far-left socialist radical, businessmen have to be figuring that future taxes will be heavier than they are now. This rules that many investments that would have been profitable with present tax law, will not be profitable with the expected tax increases. Companies respond by buying fewer capital goods than they would have and by hiring fewer new employees.
It is simple. The calculations on any given investment decision are anything but simple, especially given that one does not know what the future tax structure will be and what future mandates will exist. This uncertainty is always present to too large a degree with activist, expanding government. But with an activist socialist presidential candidate whose stated program is "Change you can believe in", uncertainty is at a maximum. Then there is the huge power grab over most every aspect of our lives represented by the Warner-Lieberman Energy Security Act's crushing fuel taxes and their uncertain administration. Only idiots would not refrain from making many investments in this climate. That this climate of uncertainty (climate change?) depresses investment is what is very simple to understand.
So, let us examine a commentary by Ed Feulner, President of the Heritage Foundation, on some aspects of our tax policy and its effects. Five years ago, key provisions of the 2001 tax cut were accelerated to take effect in 2003, including doubling the child tax credit to $1,000, ending the marriage penalty, expanding the earned income credit for married joint filers, a new 10% tax bracket for low-income taxpayers, reduced marginal tax rates for other income brackets, the top capital-gains tax rate was cut from 20% to 15%, and the tax rate on dividends was reduced from as high as 39.6% to 15%. The result was that the economy added jobs every month from August 2003 until January 2008. 8 million new jobs were created and economic growth rates more than doubled.
In the static economy mindset, the tax cuts reduced taxes by $1.3 trillion from then through the end of 2007. But actually, because the economy grew so much more and investors could invest more wisely with lower tax rates, the government collected more tax revenue, not less. In 2003, federal revenues were 16.1% of GDP, but by 2006 they were 18.6% of a larger GDP than we would have had with the original higher tax rates! With lower tax rates, Federal government tax revenues increased from $1.77 trillion in 2003 to $2.41 trillion in 2006. This is a 36% increase in Federal revenue in 3 years! Despite that huge increase, Democrats act as though government was starved for money to spend on essential programs.
It is a marvelous thing when you can have a tax cut that leaves more money in the hands of the people and at the same time gives more money to the government to tackle such issues as it should, or more likely that it should not. This additional money paid for the war in Iraq and Afghanistan and many, many unsound Congressional giveaways. There were other effects also. The top 5% of income earners paid 59.7% of all income taxes by 2005, which was the highest % paid by that group since such records were kept in the mid-1980s. The cut in the double-taxation capital-gains tax resulted in a doubling of capital-gains tax revenues.
So, why would Democrats want to end the Bush tax cuts? It sure is not so that they will have more tax revenues to help the poor and the disadvantaged with. No, it is purely for demagogic reasons. They wish to pose before an ignorant public as the champions of the poor and the disadvantaged by piling more taxes on those who are already paying the vast majority of income, capital-gains, and dividend taxes. If they really were champions of the poor and disadvantaged groups, they would leave these tax cuts in place.
Worse yet, many of them back the Lieberman-Warner carbon tax bill which will raise taxes still higher and produce huge uncertainties for business planning. It will give Congress hugely greater power and give them many more opportunities to milk money out of lobbyists for all the groups who use energy and want special exemptions, energy credits, or who want alternative fuel and energy efficiency development monies. What a bonanza of power for Congress, while the people suffer economic stagnation and the end of many of their dreams. How many diseases will not be cured, how many products that enrich our lives will not be developed and produced, how many homes will not be bought, and how many jobs will be lost in America to India and China where a carbon tax will rightfully not be adopted?
Subscribe to:
Posts (Atom)
Posts
