It’s a Myth That Corporate Tax Cuts Mean More Jobs

[Horatio Parker]

I like the idea of equity tax - corporations have to give the govt a percentage of stock. Then if they screw the govt, they're screwing their investors.

And, tho the logic of repealing corporate income tax makes sense, there's also the problem of different economic behavior.

Most important for an economy is for its members to be productive. So productive activity should have the lightest tax burden. Rent seeking and speculation should pay a premium.

In other words, an owner can't maintain control of his company for a long period of time. Horrible idea.

Where does that come from? It would be a minority stake of non voting stock. No govt control.

Anyway, what's so terrible about govt owned and run companies? They're common in Asia.

 

[bilby]

Over the course of three years, I got them to reorganize their offices, updated their computers from Windows XP to Windows 10

You fiend!

That's just cruel. You must really despise those guys.

 

[ZiprHead]

I've always thought of it this way. A higher tax rate encourages a company to invest in itself. Use the profits to expand or pay them in taxes.

 

[barbos]

I've always thought of it this way. A higher tax rate encourages a company to invest in itself. Use the profits to expand or pay them in taxes.

That's how we get fat people.

 

[ZiprHead]

I've always thought of it this way. A higher tax rate encourages a company to invest in itself. Use the profits to expand or pay them in taxes.

That's how we get fat people.

My brother in law told me this story a few months ago. His boss was complaining about the taxes he pays. Other than day-to-day expenses and payroll, he had no tax deductions because all his equipment is paid off. Instead of paying his money in taxes, he decided to buy another bucket truck ($90K) and hire another technician for his very much expanding business. The point is that the high taxes he was paying incentivised him to expand his business, making jobs for truck builders and and another sign technician.

 

[Harry Bosch]

That's how we get fat people.

My brother in law told me this story a few months ago. His boss was complaining about the taxes he pays. Other than day-to-day expenses and payroll, he had no tax deductions because all his equipment is paid off. Instead of paying his money in taxes, he decided to buy another bucket truck ($90K) and hire another technician for his very much expanding business. The point is that the high taxes he was paying incentivised him to expand his business, making jobs for truck builders and and another sign technician.

The problem with this is that it encourages companies to expand at their expense and become inefficient. As a commercial banker, I'm always advising against a company expanding merely to lower their tax bill. Here's why: your brother in laws company might not have needed the bucket truck. He buys it, lowers his net income by $90k via section 179; then all of a sudden his company slows down, he loses work, but his reserves have been decreased buying a truck that he didn't need. I see this all the time. I see companies buying out competitors (leading to large writeoffs) but expanding into areas where the management team couldn't adequately cover, or didn't understand the market, and etc. Secondly, because banks don't like it when companies reduce their reserves, companies expanding just to lower their tax bill are often downgraded, making their financing more expensive and less reliable.

 

[SimpleDon]

I suppose that you turn down salary increases because the "government is going to take more." Now that you understand the dynamic involved you don't have to.

That is actually true on occasions in Australia. With high marginal tax rates, many refuse overtime (aka known as a salary increase) if that OT would force them into a higher tax bracket. Depending upon the situation the extra OT could cause the tax to be greater than the extra pay gained.
Don't haven't all the time but the phenonium is well enough known.

I worked at the Argyle diamond mine, (which is reputedly in Australia but is as close to being nowhere of anywhere that I have been), and I heard this same thing from some of the electricians working construction there. This is not very likely. It says that Australia doesn't have marginal tax rates, that they tax the entire earnings at the higher rate as your income goes up or that they penalize overtime pay by essentially taking it all away. Neither would make any sense.

I also heard the same thing from construction workers in the US and Canada. I am familiar enough with the taxation in both of those countries to know that it is not true.

I managed construction in heavy industrial installations for most of my career. We don't want to pay overtime. It is paying more and getting lower productivity and increased safety concerns in return, because the workers are tired. It is a headache to fairly distribute the overtime so that all of the workers receive a share. They deny it but some crews will slow down their work in the normal forty hour work week to force more overtime work once you start to use overtime too frequently.

But sometimes it is unavoidable. Late deliveries of equipment and materials, bad weather, equipment breakdowns, last minute engineering changes, all can force overtime. It is much better to plan to mitigate the need for overtime by staffing up and by running night shifts to clean up the problems that pop up before they become serious. But you can only justify this on larger job sites.

I know, TMI and further derail.

 

[SimpleDon]

I like the idea of equity tax - corporations have to give the govt a percentage of stock. Then if they screw the govt, they're screwing their investors.

And, tho the logic of repealing corporate income tax makes sense, there's also the problem of different economic behavior.

Most important for an economy is for its members to be productive. So productive activity should have the lightest tax burden. Rent seeking and speculation should pay a premium.

I hadn't considered equity taxation. Off of the top I would say that almost no one wants the government owning even stock in private companies. There is little chance of it being enacted. That being said there is no way that the corporate income tax will be repealed. The tax and its repeated addition of loopholes proposed to it and the campaign contributions generated by the proposals for and against are the very lifeblood of the vast majority of Congress. For Congress it would be killing the golden goose.

 

[dismal]

And what does a higher corporate income tax do to the balance of risk and reward?

Nothing to next to nothing. It has everything to do with the prudent limits of maximizing profits that you don't seem to understand.

Ok, You are either too ignorant about the effects of income taxation (I.e, the government takes a chunk of the reward so the company gets less reward) or too intellectually dishonest to acknowledge they exist.

Not really my problem.

 

[dismal]

I've always thought of it this way. A higher tax rate encourages a company to invest in itself. Use the profits to expand or pay them in taxes.

Nope, when the government takes a larger share of your profit you have a) less money to reinvest because the government took some b) less incentive to invest because the government is going to take a share of your profit you would make.

 

[ZiprHead]

I've always thought of it this way. A higher tax rate encourages a company to invest in itself. Use the profits to expand or pay them in taxes.

Nope, when the government takes a larger share of your profit you have a) less money to reinvest because the government took some b) less incentive to invest because the government is going to take a share of your profit you would make.

Taxes are the last thing paid at the end of the year. Until then, the business has the money to invest in itself, reducing its profit and reducing its tax bill.

 

[ZiprHead]

My brother in law told me this story a few months ago. His boss was complaining about the taxes he pays. Other than day-to-day expenses and payroll, he had no tax deductions because all his equipment is paid off. Instead of paying his money in taxes, he decided to buy another bucket truck ($90K) and hire another technician for his very much expanding business. The point is that the high taxes he was paying incentivised him to expand his business, making jobs for truck builders and and another sign technician.

The problem with this is that it encourages companies to expand at their expense and become inefficient. As a commercial banker, I'm always advising against a company expanding merely to lower their tax bill. Here's why: your brother in laws company might not have needed the bucket truck. He buys it, lowers his net income by $90k via section 179; then all of a sudden his company slows down, he loses work, but his reserves have been decreased buying a truck that he didn't need. I see this all the time. I see companies buying out competitors (leading to large writeoffs) but expanding into areas where the management team couldn't adequately cover, or didn't understand the market, and etc. Secondly, because banks don't like it when companies reduce their reserves, companies expanding just to lower their tax bill are often downgraded, making their financing more expensive and less reliable.

Would you agree though that there are good reasons to invest in and expand a profitable business?

The company my brother in law works for had work they could not keep up with also. Growing business grows the economy. He has assets he can sell if slow down occur. Sitting on a pile of profits only to give it to the gov doesn't help him.

 

[Harry Bosch]

The problem with this is that it encourages companies to expand at their expense and become inefficient. As a commercial banker, I'm always advising against a company expanding merely to lower their tax bill. Here's why: your brother in laws company might not have needed the bucket truck. He buys it, lowers his net income by $90k via section 179; then all of a sudden his company slows down, he loses work, but his reserves have been decreased buying a truck that he didn't need. I see this all the time. I see companies buying out competitors (leading to large writeoffs) but expanding into areas where the management team couldn't adequately cover, or didn't understand the market, and etc. Secondly, because banks don't like it when companies reduce their reserves, companies expanding just to lower their tax bill are often downgraded, making their financing more expensive and less reliable.

Would you agree though that there are good reasons to invest in and expand a profitable business?

The company my brother in law works for had work they could not keep up with also. Growing business grows the economy. He has assets he can sell if slow down occur. Sitting on a pile of profits only to give it to the gov doesn't help him.

Yes, I agree with you that many companies grow faster than normal in order to reduce their taxes. But my point is that it can sometimes hurt a company to artificially grow too fast. In fact, the biggest reason why established companies fail is that they grow too fast. I'll give you an example: I had a client who owned several retail stores. They bought a new store each year in order to reduce their taxes (when you purchase inventory with a loan when purchasing a business, the inventory and all other hard assets can be written off). But he expanded into two stores that his management team wasn't prepared for. His working capital got out of wack. Bank got nervous due to reserves being depleted, started cutting back. And then bam, he went out of business.

 

[dismal]

Nope, when the government takes a larger share of your profit you have a) less money to reinvest because the government took some b) less incentive to invest because the government is going to take a share of your profit you would make.

Taxes are the last thing paid at the end of the year. Until then, the business has the money to invest in itself, reducing its profit and reducing its tax bill.

Well then, I guess if the government really wants corporations to invest it should tax profits at 100%. Or more.

 

[ZiprHead]

 

[Crazy Eddie]

So, let's take an example.

Exxon in 2016 had net income from continuing ops of $12,646,000,000. Your view is that they could have made more but just stopped trying because there was a companywide consensus that $12,646,000,000 was enough profit to be making?

My view -- and it is a widely shared view among economists and accountants at that -- is that Exxon PROBABLY could have made more if they took more risks with their investments and energy exploration measures. A fair number of those risks probably would have paid enough, certainly enough to boost their profits from $12.6 to 14 billion. Instead, however, they chose to put off some of those investments until the risk -- and their financial liability -- is slightly lower, so as to maximize their profits without exposing them to a potential source of loss.

More importantly, Exxon only has so many employees and so many resources it can throw at a truly staggering number of opportunities. Taking on a new business venture requires examining the opportunity costs of already profitable ones, and sometimes it is safer to keep doing what you're doing than try to invest in a new opportunity you aren't sure is going to give you the returns you want.

It is, again, the same calculation made by a worker as to whether or not he should pick up more hours or work a second job.

And, if the government raised taxes, say 10% and took an additional $1,264,000,000 they would suddenly spring into action to do just enough projects to get the income back up to $12,646,000,000?

Either that or they'd do nothing at all, since their profits would still be upwards of $10 billion.

I'm not sure I understand... are you suggesting they would suspend operations and try NOT to make that money back? The government reduces their profits by 10% and they say "Oh my god, we only made ten billion dollars! Fuck this, it's not worth it if we can only make TEN billion dollars instead of TWELVE! Pack it up, boys, we're done here!"

I mean, what exactly are you even claiming? That they only want to make money if they can make ALL of it? Or are you claiming that companies only pressure their workers and executives to work harder when things are going well?

And, if so, given income from continuing ops was $23,794,000,000 in 2015 how did it fall to $12,646,000,000 in 2016? Why didn't they try harder and keep it at $23,794,000,000?

Just because you set a goal doesn't mean you will always succeed in reaching it. And many people will only put in the maximum effort possible when they are actually in danger of failing.

 

[Crazy Eddie]

Saying it's backwards doesn't make it so. All you're saying is that they'll come up with that infinite profit if you force them to.

You're an idiot.

Over the course of three years, I got them to reorganize their offices, updated their computers from Windows XP to Windows 10

You fiend!

That's just cruel. You must really despise those guys.

They were using computers that had previously been upgraded from Windows NT and needed to be replaced. When I first suggested the upgrade they were determined to buy some cheap, $200 desktop computers running Windows 7.

That's how we get fat people.

My brother in law told me this story a few months ago. His boss was complaining about the taxes he pays. Other than day-to-day expenses and payroll, he had no tax deductions because all his equipment is paid off. Instead of paying his money in taxes, he decided to buy another bucket truck ($90K) and hire another technician for his very much expanding business. The point is that the high taxes he was paying incentivised him to expand his business, making jobs for truck builders and and another sign technician.

So, yeah... that IS how we get fat people.

I've always thought of it this way. A higher tax rate encourages a company to invest in itself. Use the profits to expand or pay them in taxes.

Nope, when the government takes a larger share of your profit you have a) less money to reinvest because the government took some b) less incentive to invest because the government is going to take a share of your profit you would make.

The bolded part doesn't make any sense. You're investing $5,000 in a company with a potential return of $500. Knowing that the government is going to take 30% of your income in taxes, do you

a) Invest nothing, and get $0 in returns
b) Invest $5,000 and get $350 in returns

And you're here claiming that there is less incentive to make the $350 than there is to make $0? That makes sense to you?

 

[bilby]

That is actually true on occasions in Australia. With high marginal tax rates, many refuse overtime (aka known as a salary increase) if that OT would force them into a higher tax bracket. Depending upon the situation the extra OT could cause the tax to be greater than the extra pay gained.
Don't haven't all the time but the phenonium is well enough known.

I worked at the Argyle diamond mine, (which is reputedly in Australia but is as close to being nowhere of anywhere that I have been), and I heard this same thing from some of the electricians working construction there. This is not very likely. It says that Australia doesn't have marginal tax rates, that they tax the entire earnings at the higher rate as your income goes up or that they penalize overtime pay by essentially taking it all away. Neither would make any sense.

I also heard the same thing from construction workers in the US and Canada. I am familiar enough with the taxation in both of those countries to know that it is not true.

I managed construction in heavy industrial installations for most of my career. We don't want to pay overtime. It is paying more and getting lower productivity and increased safety concerns in return, because the workers are tired. It is a headache to fairly distribute the overtime so that all of the workers receive a share. They deny it but some crews will slow down their work in the normal forty hour work week to force more overtime work once you start to use overtime too frequently.

But sometimes it is unavoidable. Late deliveries of equipment and materials, bad weather, equipment breakdowns, last minute engineering changes, all can force overtime. It is much better to plan to mitigate the need for overtime by staffing up and by running night shifts to clean up the problems that pop up before they become serious. But you can only justify this on larger job sites.

I know, TMI and further derail.

I pay income tax in Australia, and I can confirm that it's a popular myth.

I think what happens is that people agree to work overtime at, for example, double time; and in their heads they plan to earn 2x their usual rate. Then they get the payslip, and see that - after tax - they 'only' got 1.85x their usual rate. The disappointment is easy to remember; the numbers are not; and the memory of feeling disappointed suggests that you got 'less money', leading people to falsely recall that the tax situation made them worse off.

"I didn't get as much more as I expected" quickly becomes "I didn't get as much as I expected", and then "I didn't get as much as I did before" - it's not true, but it's a far better grumble to share with your mates down the pub.

 

[Loren Pechtel]

In other words, an owner can't maintain control of his company for a long period of time. Horrible idea.

Where does that come from? It would be a minority stake of non voting stock. No govt control.

Anyway, what's so terrible about govt owned and run companies? They're common in Asia.

The mega-rich come about because they're doing a lot better than average at running things. Take that away and you're destroying the value, not redirecting it to public use.

Furthermore, government run corporations have a very bad track record. They're run with a political eye rather than a business eye. (Not that they would run them--the shares would be sold.)

 

[bilby]

Where does that come from? It would be a minority stake of non voting stock. No govt control.

Anyway, what's so terrible about govt owned and run companies? They're common in Asia.

The mega-rich come about because they're doing a lot better than average at running things. Take that away and you're destroying the value, not redirecting it to public use.

Furthermore, government run corporations have a very bad track record. They're run with a political eye rather than a business eye. (Not that they would run them--the shares would be sold.)

I never realised you were such a staunch monarchist.