Tag Archives: economics

Tax Reform and SALT

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There are, unfortunately, some Republican Congressmen who don’t get it.  One such is Congresswoman Claudia Tenney (R, NY).

I worry about the way this bill erodes the deduction for state and local taxes, which has been in place since 1913.  …  This would compound the already excruciating financial burden that my state’s lawmakers have placed on New Yorkers.

How long the deduction has been in place is only an indication of the age of the error, nothing else.

More importantly, the decision of New York’s politicians to have such a usurious State tax code in no way obligates the rest of us to support the foolishness of SALT. If New York politicians—including Tenney—and those of other high-tax States truly are worried about the fiscal welfare of their citizens, they’d work to reform their State’s tax code and reduce their State’s tax rates and thereby allow their State’s citizens to keep more of their money.

At the Federal level, politicians like Tenney would work to reduce—even eliminate—Federal transfers of the hard-earned funds of one State’s citizens to another State absent a regional or national emergency. New York, for instance, sends more of its citizens’ money to other States than it receives from other States’ citizens; such a reform would seem highly attractive to the State’s politicians.

Federal Tax Reform and SALT

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Included in the Federal tax reform plan now on offer is the elimination of the deduction for State And Local Taxes (primarily income and sales taxes; property taxes would remain deductible up to a cap).  Republican Congressmen from high-SALT States object to that elimination, and they base their objection on the premise that these high-tax States actually send more of their States’ citizens’ money to DC than they get back from DC in other funds.

That seems a fair beef to the extent that it’s accurate, which raises a question in my pea brain.

What are these Congressmen proposing in the way of tax reform and spending reform to reduce the amount of their constituents’ money—and the money of all States’ citizens—that gets sent to DC?  Surely, they can think of ways to reduce such regional redistributions (they are Republicans, after all), or even eliminate them absent a national or regional emergency.

These Congressmen’s silence on that bit strongly suggests that their objections are not principled, but simply personal power and ego stroking.

An Edge of the Envelope

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Here’s one estimate of the cost of converting internal combustion vehicles to an all electric fleet.  Certainly, it’s a single datum, but it’s a useful one as an outer bound, plausibility estimate.  Nicola Sturgeon is Scotland’s First Minister, and she wants to replace all of Scotland’s internal combustion vehicles with electrically powered vehicles by 2032, which lends irony to the outer bound datum.  Great Britain’s green energy aficionados want to replace all of Great Britain’s internal combustion vehicles with electric ones by 2040.

Professor Jack Ponton of Edinburgh University has rudely run the numbers [emphasis in the original].

If you want to do this with wind turbines, you are talking about 16,000 more wind turbines, four times as many as we have at the moment, and I’ve estimated that would occupy some 90,000 square kilometres, which is approximately the size of Scotland.

Hmm….

EPA Settlements

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EPA Administrator Scott Pruitt has issued new instructions that

requires the agency to seek the participation of affected industries and states in settlement negotiations.

Environmental groups are having major hissy fits over this, complaining among other things that the instructions will complicate settlements and drag out what used to be easy settlement negotiations.

Of course they’re in an uproar: they’re not going to get cushy deals anymore.

Regarding their other beef, about complexified settlements, here’s an obvious solution: don’t do settlements.  Force all suits through to a court ruling/jury verdict while refusing an environmental group’s efforts to withdraw a suit when it becomes apparent to the group that they’re not going to get the deal they thought they could force with its lawfare-originated suit.

There are legitimate environmental problems, and some of them want a court’s solution.  It’s well past time that those cases weren’t delegitimized by frivolous suits or lawfare uproars.

Tax Cuts and Business Planning

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Some large businesses are claiming that, rather than being good for job growth, the tax reform plan currently on offer in outline form would be good for investors.

As if these are mutually exclusive outcomes.

The chief executive of Honeywell International, Darius Adamczyk, said tax reform will “offer greater flexibility for Honeywell,” adding that the industrial conglomerate would invest more cash in the United States to pay for dividends, mergers and acquisitions, share buybacks and paying down debt.

Amgen CEO Robert Bradway said on Wednesday any tax reform would be incorporated into its capital allocation plans, noting the drugmaker expects to continue to raise its dividend and buy back shares.

However (there’s almost always a however).

Greater flexibility is always a good thing for business, especially in contrast to government fetters telling a business (or pressuring one through, say, a tax code) what its investments ought to be, what its products ought to do, how it ought to produce its goods and services.

Investing more cash in dividends is good for the stereotypical widows and orphans—folks who live on fixed income sources and who have been hammered by the last eight or more years of government-suppressed interest rates.  Dividends also are a way of attracting investors—which is cash for the business.

M&A are a way (not the only way) businesses can grow, increase efficiency, achieve greater economy through greater scale.  Which adds up to lower prices for consumers and greater demand for the product.  Achieving functional monopoly (or oligopoly—monopoly by a few) power and abusing it?  There’s a law for that.

Share buybacks?  Those are a wash, with no economic effect good or bad—for the company or anyone else.

Paying down debt?  That’s always good.  It gets a monkey of too much debt off the business’ back, reducing its cost of money when it needs to borrow again.  Or pay existing dividends.  Or otherwise increase the business’ flexibility.

All of which is good for job growth, even in if it might not increase hiring on the instant of, say, a significant corporate tax reduction.  Good for investors means good for businesses.  Increased flexibility means good for business.  Increased efficiency, lowered price to consumers, increased consumer demand means good for business.  And that means the business grows and hires.

And, yes, there will be relatively prompt increases in hiring, also.  That’s more of that flexibility: businesses won’t put all of their eggs in one basket, if they’re (allowed by government to be) flexible.  They won’t be any more likely to put all of their tax cut into dividends or share buybacks than they would be to use it all for hiring.  And I haven’t even mentioned committing some of that tax cut to increased R&D, which produces more and better products, which increases demand for output, which facilitates growth—which leads to increased hiring.

But, but….

The situation could be a replay of the massive 2004 repatriation “holiday” under President George W Bush, in which 843 US-based multinationals brought back $362 billion in overseas profits at a deeply slashed tax rate of 5.25%.

Most of that money went to stock buybacks and dividend increases.

This is a non sequitur.  The tax reform on offer isn’t a holiday, a one-time event.  What’s on offer is permanent, so actual long-term planning will be able to be done, and the funds more efficiently allocated for the long game.

The Reuters piece at the link didn’t discuss the other major aspect of the proposed tax reform, the tax rate cuts and general reform from the individual taxpayer perspective.  Those rate cuts and reforms represent more money in the hands of taxpayers.  That means more stuff getting bought and more money being saved and more money being invested by those individual taxpayers (often referred to as retail investors, because the vast majority of us are not institutional or professional investors).

Greater demand by individuals means more production by business.  More money being saved means more money in the banks’ hands to lend to businesses and individuals—which means business expansion, more houses being bought, and on and on.  More investment by us retail investors means more money in business hands to fuel R&D, production, expansion.

And all of that means a growing economy and increased jobs.

“Good for investors” and job growth, far from being mutually exclusive, are mutually supportive.