Category Archives: markets

Tax Misallocation

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The misallocation, this time, is not in the way our tax monies are being spent.

It’s in what our money is not being spent on in lieu of paying those taxes in the first place.

According to a 2018 Bureau of Labor Statistics survey—before the 2017 tax reform bill had been able to percolate into our economy in any serious way—we Americans spent more on the taxes Government exacts from us than we did on food, clothing, and health care combined.

That survey found the average American unit, which consists of both shared and single households, spent an average of $9,000 on federal income taxes last year. Americans also spent an average of $5,000 on social security, more than $2,000 on state and local taxes, and another $2,000 for property taxes.

That’s $3,000 more than we spent on those aggregated necessities.

Aside from a low, flat personal income tax without the exceptions froo-froo currently present, as suggested for corporate taxes (see nearby),  the next tax reform target needs to be on Social Security—whose Trust Fund will be exhausted in a few years, leaving the stark choice of raising payroll taxes (or increasing taxation from other sources) to cover the shortfall, or lowering the payouts to fit within the existing (payroll) tax structure—a roughly 30% reduction in payout for each recipient.

That reform, as I’ve written before, needs to be an elimination of the payroll tax altogether—more wage money left in the hands of the earner, which is especially important for those earning the lowest wages—and privatizing both Social Security and Medicare, and making the payouts for the future benefit of the saver and his family rather than immediate payout to utter strangers. That will leave the saver responsible for his own money and, with his skin on the line, he’ll do a far better job of managing those monies than even the most well-intentioned collection of government bureaucrats ever can.

Oh, yeah: privatization also would eliminate the employer’s payroll tax bite, leaving him more money for R&D, marketing,…

Byzantine Taxing

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Many companies, sitting on billions of dollars of tax credits, want to be able to cash them in promptly.

For example:

Duke has been unable to use all the corporate-research and renewable-energy credits it accumulated because it has been using accelerated tax deductions for capital investments to lower its taxable income, said Dwight Jacobs, the company’s chief accounting officer. That bumped it up against tax-code rules that limit tax credits, leaving $1.8 billion in unused credits on Duke’s books. Under the proposal, the company could get that within months instead of years.
The proposal “would give us more cash today and that would cause us to avoid borrowing money that we would otherwise have to borrow,” said Mr Jacobs.

And

Under the tax code, companies can claim credits for activities encouraged by the government. Among the largest are credits for conducting corporate research, funding low-income housing, and producing renewable energy….
Unlike deductions, which lower taxable income, credits reduce a company’s tax bill directly. But there are limits. Companies can generally offset only 75% of the taxes they owe by using credits. Any leftover credits can be used for one previous year or up to 20 years in the future.

Sound complicated? That’s the point. This isn’t a matter of helping out Duke, et al., with a particular section of the tax code. This is a matter of a too-complicated tax code.

We need, badly, to simplify it. A single, low rate, with no deductions, subsidies, credits, or other froo-froo would be suitably simple.

Better, would be eliminating corporate taxes altogether. In the end, the taxes a business pays are just costs passed on to customers in the form of higher prices; the taxed business doesn’t itself pay very much of its tax liability.

Either move would be doubly beneficial: more money left in the company’s coffers for R&D, marketing, capital improvement, jobs, wage increases from the reduced/eliminated taxes. More money also would be left in the company’s coffers for R&D, marketing,… from the reduced/eliminated tax compliance costs.

And all of that adds up to lowered prices for the company’s customers.

Market Performance

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Great Britain has decided to bar the People’s Republic of China’s telecom company, Huawei, from participating in the British build-out of their 5G network.

The PRC isn’t happy. Foreign Ministry Spokesperson Zhao Lijian:

Whether the UK will provide an open, fair and non-discriminatory environment for Chinese businesses offers a telling clue to how the post-Brexit British market will perform and how secure China’s investment will be in that country. So, we will be closely following the situation.

I certainly hope it’s a telling clue, given that PRC companies are extensions of that government’s intelligence gathering facility.

Besides, diversity in 5G network buildout and operation, which will be facilitated by avoiding Huawei participation and domination, will only enhance the communications market; enhancing national security in the several nations is a happy additional outcome.

More Disingenuosity

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The Supreme Court has ruled—7-2—in favor of the Little Sisters of the Poor and other organizations. The Court upheld the Trump administration’s rule exempting these employers from an Obamacare requirement to provide insurance coverage that includes contraception.

Justice Clarence Thomas wrote for the Court:

We hold today that the Departments had the statutory authority to craft that exemption, as well as the contemporaneously issued moral exemption. We further hold that the rules promulgating these exemptions are free from procedural defects.

Justice Ruth Bader Ginsburg dissented.

…this Court leaves women workers to fend for themselves, to seek contraceptive coverage from sources other than their employer’s insurer, and, absent another available source of funding, to pay for contraceptive services out of their own pockets.

Ginsburg is being disingenuous in this. Contraceptives are dirt cheap in Walmart and drug stores. It’s no great burden for “women workers” to pay for contraception “out of their own pockets.” If it’s a burden to seek “contraceptive coverage” from other sources, that’s the direct result of Obamacare driving up the cost of all coverage.

Ginsburg is being sexist in this. Condoms are nearly as cheap and even more widely available. But Ginsburg is blithely assuming that contraception is solely the responsibility of the woman.

Markets

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Zimbabwe, in attempt to protect its currency—already a close neighbor of worthless—has decided to close its stock exchange.

If there is no market for the currency, then it has little value in terms of purchasing power. If there is no convertibility of the currency into other currencies, then there is both high risk in holding the currency and reduced interest in holding it.  And so reduced purchasing power.

If the currency has little value and limited convertibility—or either alone—there is little interest in investing in the country or in simply buying its goods or selling foreign goods in—especially if the investments must be done in the domestic currency.

Without foreign trade or investment, domestic production of goods and services is strongly limited—especially when the nation is so far from self-sufficient in necessary resources—the inputs to any production.

Limited production, limited buying—the stuff of economic stagnation moving into decline.

Closing a stock exchange in such an environment is a move with no relevance to the failure of the ZWL. Aside from the fact that only the very rich Zimbabweans and foreign investors traded on that market, the failure of the currency is a failure in citizens’ belief in the government, a failure of their confidence in the nation, and a disbelief in the citizens to keep what they’ve earned, whether hard goods or money. It’s a failure in confidence in the future.

Getting the future back is more serious business than closing a stock market.