the Air Vent

Because the world needs another opinion

Tax Thought Inversion

Posted by Jeff Id on August 8, 2016

So here is another example of wrongthink so actively promoted by the inappropriately self-titled ‘progressives’.

Advocates cite health benefits in pushing the proposals. “The goal of taxes on sugar-sweetened beverages is to reduce consumption of sugar-sweetened beverages, which science has proven to be directly correlated to detrimental health impacts such as diabetes, obesity and heart diseases,” San Francisco Board of Supervisors member Malia Cohen told FoxNews.com. — source

Clearly this statement is accurate.  If we tax something, we increase its cost and across a broad spectrum of personal economic decisions, reduce the likelihood of its consumption.  The tiny tax also primarily reduces its availability to the most impoverished section of the public rather than equally distributing the reductions in consumption but that is also a progressive talking point.

Let’s see this other concept though:

Indeed, Clinton’s proposals call for $2.2 trillion in new spending over a 10-year period, with plans that would allow in about a million more immigrants a year. She’s looking to boost spending on infrastructure and education, as well as providing paid family and medical leave, increasing the minimum wage, and investing in economic development and research.

To pay for her proposals, she’s calling for a near-equal amount of taxation, with the burden placed primarily on the shoulders of corporations and those making more than $300,000 a year. Clinton’s plans rely primarily on Keynesian demand-side solutions, while Trumps’ are more focused on supply-side tax cuts. — from the ever-left CNBC

And Moody’s, using economist Mark Zandi decided that somehow leveling a 2.2 trillion dollar new CORPORATE tax would create more JOBS!  YES, if we take the company money, they will invest more money for more employees! See!!   If stupid capitalist CEO monkey has less money for bannanas, he will buy more bannanas! But if citizen monkey has less money for soda, he will buy less soda………  It doesn’t make sense even on a 4th grade level.  Increase business tax on the highest taxed country in the world means less business for that country… Easy!  The only way I see this econoschill coming up with these conclusions is a lot like Michael Mann, Zandi has tweaked parameters with a high economic feedback rate that grows corporate prosperity by unrealistic and probably non-linear amounts —- like climate science this is for a purpose folks.  Pay attention here.

Our business hasn’t even finished experiencing the full increases from Obama tax hikes -because they were delayed until after the election and now they want more!!!

Zandi had already contributed the maximum allowed amount to Hillaries primary campaign by one report.  On another topic, Hillary has also received 40 million from the severely undertaxed hedge-fund managers who’s personal profit is massive, yet they are taxed at capital gains which is well under half the true rate of manufacturing in this country.  One of the biggest left-wing talking points is hedge fund managers paying capital gains on their own income.  This subject is an absolute easy call for either party which should have been fixed decades ago but they continue to rake in the dough because they contribute to buyable crooked politicians -like Hillary.   Ever wonder why we have fund managers doing well and manufacturing going away?

Taxes folks, we have the highest business tax in the world.  Why should I keep jobs here if the taxation rates are so high.  Why not ship them to where we make more money?

Another example of inverted thought is that Hillary will punish corporations for ‘inversion’, or sending work overseas.  She and the rest of her ilk know we are overtaxed and that we would succeed more in another country.  It is EXTREMELY expensive to relocate a company to another country, especially in personnel, so the payback in taxes is obviously very large.  Yet companies in the US are investing in that exact move! We in the US are so overtaxed, that businesses are intentionally leaving to other countries, shouldn’t we look more closely at the ‘tax rate’?  Or should we just add another punishment tax for a US company trying to remain competitive in the world?   Yet the public is so ignorant of economics, they can’t parse the obvious.  For the US to be globally competitive, we need lower tax rates and less regulation, not more.

This is common sense folks, and it ain’t rocket science.  Zandi is an insider shill and he is selling an ass-over-head economic model to get Hillary elected, IMO likely for some form of personal benefit of which I have no idea.  The US manufacturing sector has continued to wilt under the massive limitation based policies of the last 20 years.   Just as you were told it would.

Let’s keep it simple though.   We all want opportunity for people.  I see these personal business numbers on a daily basis, I know them, I understand them.   I understand what yet another 2% or 5% tax increase does to available cash and investment and it is not pretty.  I understand what a 10% percent reduction does as well, and I have to tell you that we would be working very hard to keep employees with a 10% reduction in total income tax percentage because everyone would be investing violently in growth — that would drive wages up very strongly.

If you want new jobs, a massive removal of money from the corporate bank accounts is not rational on any level.  Don’t let others steal the bananas if you want some for yourself.  BUT—-if you actually want less jobs, you should tax the people who create jobs more.

Simple —-see. Easy call.

 

 


20 Responses to “Tax Thought Inversion”

  1. Tom in St. Johns said

    Of course they are looking to increase taxes and stifle job creation. The best social welfare program in the world is a private sector job, and we can’t have that competing with their “compassion.”

    • Jeff Id said

      Yup. The oddness is that they state it both ways and people buy it. I don’t see that coming from the conservatives. There must be some social issue that I don’t care about where the opposite of reality is used one time, yet reality is used in another similar instance by the cons. I can’t find it though.

  2. Chuck L said

    What do you, a bourgeoise capitalist pig, with a successful and rapidly growing business, who has actually had to meet a payroll, and whose business, by virtue of its success, enhances the lives of those who work there, know about business and the economy? Only infinitely tweaked econometric models using assumptions guaranteed to give the desired output, i.e. higher taxes will increase the rate of GDP growth, know the future, being the repository of all financial and economic knowledge! Wait, that sounds like climate models!

  3. If the US eliminates the carried interest exemption I gather it will be pretty easy for hedge fund managers to structure compensation such that their performance fees receive capital gains treatment. In Canada there isn’t a carried interest exemption, yet hedge fund managers can readily structure Limited Partnerships to obtain capital gains treatment c.f. “At the end of each fiscal period, the limited partnership will allocate taxable income, consisting of ordinary income or loss and taxable capital gains or allowable capital losses, to the general partner when there is a positive balance in the general partner’s account. The benefit of structuring the general partner’s entitlement in this manner rather than receiving fees is that, when taxable capital gains are allocated to the general partner, the general partner will be taxed at capital gains rates on what would otherwise be fully taxable as fee income. ”
    from http://www.airdberlis.com/Templates/Articles/articleFiles/936/The%20Structuring%20and%20Taxation%20of%20Canadian%20Hedge%20Funds.pdf

    My take is that the US discussion is all just political posturing rhetoric.

    This is not tax advice!

  4. hunter said

    B-b-but Trump talks mean! Why if the press misquotes him, he is down right scary! And Hillary is smooooothe.

  5. Ray Toster said

    Hi Jeff,
    I just watched the Video of Murray Salby’s lecture (1 august) on the role of CO2 , which is available at Climate Etc (10 August).

    I found it convincing.

    The comments at Climate etc. are volumous and mostly a waste of time.

    I was hoping you would post something up regarding his maths and lecture, as I value your opinions and your commenters are a pretty rational lot.

    I don’t know where else to turn for good information.

    Ray

  6. Jeff Id said

    Sales are down still. Quite strongly. As I have repeatedly pointed out, we lead the stock market. Hopefully, I am eventually going to be proven wrong but life aint soft. — unless you are a govt employee

  7. kenfritsch said

    Jeff, I think sometimes we tend to make things too complicated when we attempt to provide rationales for more and higher taxes. There, is of course, the Civics 101 version which is kept far from reality in attempts to sanitize and idealize the system. The process goes something like this:

    1. Government needs to play a role or a bigger role in this area of the citizens life. And there are no limits to that involvement or the areas of involvement.

    2. That government involvement requires funding and in many cases with the federal government large amounts of funding.

    3. That funding can be obtained by borrowing money now and letting future generations pay it back either through higher taxes or by the government printing money and attempting pay off debt with inflated dollars. An alternative solution is for the Federal Reserve to step in and artificially keep interest rates low to avoid the interest payments on the debt to become so high that there is either a threat of default or the interest payments become a major part of the government’s spending budget.

    4. An alternative way that sounds better to those concerned with high debt and its consequences is to, at least in the beginning, propose a tax to cover the new funding. That the new tax can greatly inhibit economic growth and have other negative effects is never mentioned ot hand waved away. Taxes in and of themselves, and particularly new taxes, have a negative effect on the voters and thus the big government spenders have to find an optimum way of obtaining those taxes. It is here that the idea of fair taxes (if such a thing really exists) is totally ignored and the strategy is rather based on the easiest path with the least political consequences. Of course, there are fewer wealthy voters and voters with high incomes and thus they are a prime target. Another target is the poorer classes who can be taxed with little negative political effects when that tax is a so called sin tax. Indirect taxes such as those imposed on large businesses who are able to pass that cost onto the consumers as long as their competitors pay the same taxes are a way of fooling the voter that they are not being effectively taxed.

  8. Guddy said

    Thx for info

  9. CM said

    I suspect the problem with your analogy is that sodas (and cigarettes and liquor) are optional, while earning an income is not optional (for most of us). So it is a flawed economics comparison.
    Granted, if we taxed income too high and at a flat rate we would disincentive it too much. No doubt. But, a few decades of US history (and German economic history?) suggests we are not there, and that we could have much higher marginal rates. In fact, high marginal rates might help the economy (there is still an incentive to work to get to the upper brackets, but by limiting gross concentrations of wealth we increase opportunity for the 99%…it’s a plausible theory I say). Now as for corporate taxes, that is more complicated, and I more skeptical of it (it seems they should be lower) and I don’t think I can take that one on tonight.

  10. CM said

    I have not read your blog in a very long time. I assume and hope you are for the Johnson/Weld ticket?

  11. Frank said

    Jeff: Paul Ryan was discussing business taxes on CSPAN (Economics Club of NY?) recently. He claimed that businesses in Wisconsin were paying 35% marginal tax rates while competitors from Canada were paying only 15%. Most of your readers including me don’t understand the various options for small businesses like yours (S corp? etc.)

    Is there somewhere I can read about or possibly hear you blog about why a small business owner paying a 35% marginal tax rate is different from a individual paying a 35% marginal tax rate?

    (IMO, we desperately need more successful “capitalist exploiters of the masses” and are stupid to neglect them. Without them, no one has a job and no one is paying employment and income taxes. Without more employment (the labor force participation rate is way down), our deficit will remain large (or a tax increase will be needed), and there will be little competition for good minimum wage employees. A higher minimum wage will probably simply produce fewer minimum wage jobs.)

    • RickA said

      I will jump in here, just for the heck of it.

      I am a part-owner of a law firm, which is a C corporation in Minnesota.

      Like an S corporation, it is a pass through entity (I think this is correct anyway).

      Salaries are deductable and a C corporation tries to have Zero net income and pay zero taxes.

      The salaries are W2 income to the employees and are taxed at the personal income tax rates.

      If a C corporation screws up and has a net income, we pay 34% Federal corporate income tax rate plus the 8% Minnesota rate – then the salaries are still taxed at whatever rate the individual has.

      So speaking just for a C corporation, almost everything is deductible – rent, computers (section 179), salaries, meals and entertainment are only 50% deductible – but the idea is that all profits are disbursed to the employees and are taxed at the individual rate (unless we screw up).

      I assume an S corporation is somewhat similar.

      The point is – why pay 34% (or 35%) on a payment for legal services, disburse the money to a lawyer as W2 and then pay 31 or 36 (or 28) again – the idea is not to tax the same money twice.

      At least that is my poor understanding as a business owner.

      Hope that helps.

    • Jeff Id said

      C corps are not pass-through. Sorry Rick.

      Large law firms sometimes operate under an unusual set of “service” type rules, which I cannot recall as I’m not an expert. What I do recall is that law firms, under this “oddly” favorable set of rules, are required to distribute ALL income to their employees. dividing the income into lower pay scales, and the employees pay personally back to the firm for expenses —- which then avoid depreciation. The firm must distribute all income each year having none left to report for itself, and the individual must pay the income tax after contributing their share of ‘expense’ back to the firm. It is an unusual pseudo-law which is beneficial to law firms — who oddly enough….. write the laws. This is not how actual C corps work.

      C corps are companies that pay taxes directly to the government just like employees. They pay their own profits but individuals working for the company pay their own income tax. Our S corp or LLC’s don’t pay a single penny to the government directly. Even more amazing, more than half of the businesses in America don’t pay a cent. They are called pass-through entities. Nearly every non-Wall Mart business you buy from is one.

      DEPRECIATION.

      The evil word which has forced manufacturing to leave America.

      The problem with manufacturing is that the government has declared that most BIG purchases are not expenses. Our business actually writes the check for equipment, building, vehicle, consulting etc… but we write another to the FEDS at maximum taxation level as though the payment went directly into my pocket — like a lawyers would. Imagine you made 250k, put into an awesome machine, and the government demanded you pay the tax on the 250 just like you put the CA$H RIGHT in your pocket today. That is my world, and the world of manufacturing in the USA. Which is why many of us speak Chinese etc…. I know 250,000 ain’t big money to most of you, but to me it ain’t small shit! That is the tip of the iceberg.

      In fairness, my true tax rate has improved in recent years. At this point I pay about 65% of my income to the various governments of the US and it makes me wish I wasn’t in manufacturing. Punative! but it is better than the 70% of previous years.

      If you make 70K per year, would it be fair for you to pay 49k in tax? Not the 35–x% they advertise is it????

      Until you try to fit the numbers on a personal check, writing as small as you can, it is hard to understand the impact. As a previously not self-employed engineer, I know I didn’t.

      When Hillary wants to increase tax on the wealthy, she is directly addressing pass through companies -55% of the business in the country. She is demanding massively increased taxation of business. Over half of the allegedly high-income earners are the lousy S corps who don’t actually pocket the money the fed rules force us to report!! Pay attention to the pea in the pod!

      All you need to do to verify my claims is track manufacturing in the us for the last 30 years. We are being depreciated out of business by a set of side-rules that don’t sound like taxation.

      CM above indicates that he thinks taxes are fine because something seems good to him, yet he never considers what might be better. Small minds lead to small result.

      • Frank said

        Jeff: Capitalizing long-term assets and depreciating them is a reasonable way to determine if a business is profitable. Capitalizing assets and depreciating them may also be sensible tax policy when the money used to purchase the asset is borrowed and the interest is deducted from income. However, if you are funding your business solely out of personal income/cash flow, the scenario you describe seems insane.

        The analysis could be trickier if you’ve funded your business with a home equity loan, or if you have outside investors.

        When one sells commercial real estate, I gather one can avoid paying capital gains taxes if the gains are re-invested in similar property. This may be why one of our candidates for President is unwilling to release his income tax records.

        Personally, I wonder if it would make sense to tax only individual income and never tax business income that is re-invested in a business. Tax dividends and capital gains at the individual’s marginal rate. To prevent businesses from becoming vehicles to shelter personal income from taxation, some strict rules might be necessary: The amount of income and period one could retain income inside your business for future investment without penalty would need to be limited. The number of employees (not contractors or family members) might used used to determine what is and is not a “real business” and how much money can be retained.

        • Jeff Id said

          Frank, Several good points for sure. It makes me remember what attracted me to blog. Thank you!!

          First – “Funding from income seems insane.” No sir, this is not insane. In business, you use banking as a lever, not a result. Lots of non-business folk believe in that trap. You fund with income and when you grow large enough to get the attention of banks, you use banks only as backup. Trump (and Hillary) actually said that with the numbers they spouted on comparatively small numbers for Trumps own businesses during the debate. One of the only reasonable details he and she gave. The magnitude of debt they discussed, if it is true, was properly small for his assets.

          Other subjects, a home equity loan on my house wouldn’t fund 1 day of the business.

          Yes if you sell real estate, and buy other real estate of greater value you don’t have to give half of it to the government of the united states to be redistributed. Should you have to? Is it not ok to transfer assets without the government taking huge chunks? Doesn’t that help liquidity and overall economic flow? We spent a shit-ton on industrial land this year and the owner of the land simply moved the asset to new farm land of larger size and less value per acre. Should they chuck half of their decades-after-investment income to the government?

          “Personally, I wonder if it would make sense to tax only individual income and never tax business income that is re-invested in a business.” — It would be an interesting experiment but consider if you went 100% in the other direction and considered all business INVESTMENT to be INCOME.

          Oh shit, we already did that….. We did, we as a country own it and our competitor nations know it. In AMERICA our investment into business is income.

          I wonder though, since we are all equally experienced in business in blogland and Mr. Id is clearly a conservative, our company was literally hit with a decision today where we could send two actual jobs overseas with a phone call….. the night is still early…… or we could lose the business to China..

          Frank. I’m actually going to let you make this call. This is no hoax, it is true and actually happening today. 10,000 high efficiency lights per month plus 6000 others of various pedigrees, and I have to make the decision before tomorrow. Do the American workers who make these lights lose their job to China and we keep to making profit in America, or do they lose their jobs to Chinese companies and we lose their profit — your call! Hillary would tax us additionally for the right decision but I want to know yours.

          This is just another day in my life, so don’t wuss out on it. You say we build in China, people lose work and profits stay here, you say we don’t do it, we lose business and profits go to China.

          Your call.

          ————-

          Businesses make these calls every day. It’s only a couple more American jobs, so what do you say…

        • Jeff Id said

          “However, if you are funding your business solely out of personal income/cash flow, the scenario you describe seems insane.”

          Most of the business in America is operated on the basis that what they make is considered pass through income. While it may seem “insane” to those who haven’t done it, your personal income drives 100% of the business.

          Just to be clear, most of the buisinesses meaning over 50% of them AND most of the taxable business income in the US… The left is trying very hard to help the C corps take over though.

        • Frank said

          Above Frank wrote: “However, if you are funding your business solely out of personal income/cash flow, the scenario you describe seems insane.”

          Frank intended to write: “However, if you are funding your business solely out of personal income/cash flow, the taxation system you describe seem insane.” Entrepreneurs like you need to raise money for capital expenses from somewhere, or your business won’t grow, or even survive.

          My father was a general contractor whose business assets usually provided the collateral he needed to get a construction loan for the buildings he usually built. However, he did have to use our home as collateral for one project. He bought the business (including land, office and workshop) from its founder over about a decade using the profits the business earned. (The self-taught founder was an Okie escaping the Dust Bowl with an eighth grade education.) I never thought about it, but I suspect that my Dad was probably required to pay taxes on those profits before they could be used to pay the founder for the company’s capital assets. He ran it for another 15 years, but there was no suitable successor to take over when he retired. I once asked why he hadn’t raised me to be his successor (rather than a scientist) and he told me he didn’t want me to have to work under as much pressure as he did. He did start a second specialty construction business that he sold and is still operating.

          One of our presidential candidates keeps saying that we have to stop American jobs from going overseas to China, Mexico or elsewhere. Those aren’t “American jobs” under the controlled of politicians; those are jobs provided by privately and publicly owned companies. If a job can be done more cheaply overseas, that job is likely to move overseas. If the US company providing a job doesn’t or isn’t allowed to move that job overseas, then someone else may start a competing business overseas and possibly put the US company out of business. (So I think you should do what you need to do to survive, including being able to look at yourself in the mirror in the morning when thinking about your employees.) The only other option was to have walled the US off from all imports several decades ago to preserve American jobs, forget about exporting anything, and have the government “help” the uncompetitive businesses that resulted. The fall of communism showed us how well that strategy worked in Eastern Europe.

          IMO, we need far more people like you – who can turn labor and materials into products people want to buy and employ workers who generate revenue for the government (income and employment taxes). If more people like you were thriving, the labor market would tighten, and competition for good workers would direct them to the most profitable jobs, raising wages. Employers who weren’t paying their employees what they were worth (as measured by the value of the goods they produced) would lose their best workers. You are a national treasure, but too often get treated like a “capitalist exploiter of the masses”. Competition (not redistribution and other forms of government interference) is the surest path to the lowest possible prices and fairest salaries. Unfortunately, there are huge barriers to changing jobs, finding qualified workers (or educating them), and great pain in losing a job (that can make it difficult to get started again). The WSJ opinion writers who praise the virtues of “creative destruction” come from ivory towers that haven’t experienced it.

          • Jeff Id said

            ” The only other option was to have walled the US off from all imports several decades ago to preserve American jobs, ”

            A little overstated don’t you think? Are there no grey areas between massive regulation and over-taxation and remaining comparative in such areas with the rest of the world? Right now we have the largest government on the planet watching over our every move. Regulating our actions in a vastly more extreme manner than nearly any corporate culture in the world. On top of that we have the most punitive tax laws for manufacturing on the globe.

            If you were to tax the US like Tiawan or HongKong, or any of the regions of the world actually doing production, even with the insane regulation we carry, the advantages of working in the US would take over. There is too much knowledge here, if we could afford investment in something other than the largest welfare programs in the world, there wouldn’t be any need to enslave people to the federal government by the millions. It is anti-evolution to think that we could create a huge incentive program for not working, watch it grow dramatically into a booming industry, and not recognize the cause. Of course the politicians are raising a class of permanent voters, so they understand and you can’t blame the democrats for their fraud, but it isn’t reasonable for the voters themselves to fail to notice.

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