Tag Archives: economics

Apparently Bureaucrats Don’t Have Enough Control Already

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The European Commission is considering unilaterally expanding the scope of its authorities.

The European Union’s antitrust authority on Friday said it was considering changes to its merger review rules to include a wider swath of technology and pharmaceutical deals that normally wouldn’t fall within its purview but could possibly harm the bloc’s internal market.

…the European Commission said it was fielding opinions from the public on whether the regulator should also probe mergers involving companies with smaller revenues.

Because instructing the big companies on the business decisions the Commission would permit them to take doesn’t have enough juice for them anymore.

Such a move would be especially significant for the digital and pharmaceutical sectors, the EU said, where an acquired company might generate little turnover but holds commercially valuable data or owns products under development that haven’t yet been marketed.

That’s an area of regulatory vacuum, and we can’t have that, now can we?  Besides those data and nascent products represent action on which the EU wants its vig.

Restricting Supply or Demand?

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Only in a centrally planned economy would either be tried, much less both on the same item.

Seventeen Chinese cities have imposed restrictions on buying real estate in the past week as China’s leadership tries to cool a home-purchasing frenzy that is sending prices soaring.

These restrictions come with the justification that demand is too high—there’s too much money running in—for the supply of housing that’s actually available.  And, in addition to increasing the down payment required to get into a house (which should be a bank decision, not a government one (except that the PRC’s banks are controlled by governments at various levels of the hierarchy)), the government is requiring that

families who have two or more properties [are barred] from taking out mortgages and buying more.

By restricting demand in this way, the government also is restricting the supply.  While it’s true that capital projects—house and apartment building, in this case—take more time to come to fruition than money takes to come into the demand side, this artificial restriction on demand eliminates incentive to supply.

The PRC is ignoring the fact that, in a properly free market, supply and demand do a fine job of restricting each other—and at prices satisfactory to both suppliers and demanders.

Donald Trump’s Taxes and our Tax Code

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Republican Party Presidential candidate Donald Trump took a tax loss of more than $900 million in 1995.  This would seem to allow Trump to pay vastly reduced, or no, income taxes in the ensuing several years.  Democrats are all up in arms over that, and how unfair it is, and how Trump must be dishonest to do such a thing.

Never mind that it’s all perfectly legal.  Never mind that Trump has said that illustrates the byzantine nature of our tax code—and that he agrees it’s unfair, because most folks don’t have the ability to generate those losses or carry them forward into succeeding years to reduce those years’ income tax liabilities, and that our tax code ought to be simplified to make it fairer.  Never mind that he (as he’ll happily and enthusiastically tell you) is ideally positioned to do that tax code reform because he’s a skilled user of the tax laws.

What is it, then, that Trump was able to do?  It’s centered on a tax reduction device called “net operating loss carry-over,” which in very general terms allows a taxpayer’s business losses to be carried backward in time for two years, so a taxpayer can file amended returns to reduce his tax liability (and likely get refunds) for those two prior years and/or to be carried forward into future years (lots of them, today) to reduce tax liability on income generated or expected to be generated in those future years (the tax planning gets complex, which is part of the “unfairness” of this aspect: it takes money to afford the tax experts that can help with this planning).

This NOL loophole in our income tax code is almost as old as our income tax itself: the Revenue Act of 1918 created the concept.  The purpose was, ostensibly, to let businesses smooth out spikes in their incomes and losses in particular years so as to both weather general economic downturns better and to do more efficient planning for future years: planning for product development, sales and expenses predictions, and the like.  That’s one kicker, and I’ll come back to it.

Another kicker centers on the folks most likely actually to be able to use such a loophole:

Cyclical businesses that can suffer heavy losses in downturns, such as consumer-goods makers. Owners of real-estate investment firms, with big interest and depreciation deductions, also can benefit. Other rules benefit real-estate investors such as Donald Trump, including the ability to use losses to offset other kinds of income.

Which is why most folks don’t have the ability to generate those losses and then to carry them forward.

The losses don’t even have to be “real” losses, either.  Some taxpayers are able to structure their activities so as to generate paper losses while taking in actual dollars.  Many of these schemes are fraudulent, but many can be structured perfectly legally under our byzantine tax code.

Now to those two kickers.

With a simplified tax code, this sort of thing would be vastly reduced.  With lower rates—a critical part of simplifying our tax code—the value of doing such a thing would go down greatly: with less money being lost to taxes in the first place, there’s less incentive for a taxpayer to go to lengths to protect his money from taxes.  Eliminating income taxes on businesses altogether—individual citizens wind up paying a very large fraction of the business’ taxes anyway through higher prices—would eliminate altogether the need to do things like NOL adjustments to tax liability.  Everyone would be treated substantially the same by our tax code, with differences centering only on actual income.

And: businesses wouldn’t need to incur expenses anticipating the future as it relates to tax planning; they could, instead, spend their resources on planning for product development, sales and expenses predictions, and the like.  Businesses could make their decisions based on business imperatives rather than on tax incentives.

Why Does Seattle Hate The Unskilled?

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The Seattle city council, in its infinite Know Better wisdom, has passed what it’s pleased to call a “secure scheduling” ordinance.  This is an ordinance that requires “certain” employers

to tell their workers two weeks in advance which shifts they will be working.

Should an employee be called in for extra hours, say, to replace a sick co-worker, the employer will have to pay him added “predictability pay.” Should an employee be sent home early—maybe because business is slow or a delivery is late—the employer must compensate him for half the hours he was scheduled to work.

And, if you can believe it,

[O]n-call staff will earn half pay for shifts when they are not called into work, while those employees that have less than 10 hours between two shifts will receive time and a half. Managers will also be required to offer any additional hours to current employees before taking on new hires.

Never mind some well-known actual facts.

In response to Seattle’s recently passed minimum wage law that will quickly raise the minimum to $15/hr, a University of Washington study released last summer

found that the mandated wage increase has led to fewer hours worked per-employee and slightly less overall employment for Seattle’s lowest-paid workers, compared to similar earners in other parts of the state.

And last spring the San Francisco Chronicle reported that in response to San Francisco’s “secure scheduling” ordinance,

1 in 5 surveyed businesses had cut back on the number of part-time hires, and a similar number were scheduling fewer employees per shift[.]

Of course, the worthies on Seattle’s city council know these things—the histories are much too recent for them not to know—hence the question in my title.

Systemic Risk Sources

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The Wall Street Journal has identified one.

…the US Justice Department is seeking a fine of up to $14 billion for selling mortgage-backed securities between 2005 and 2007. That is well beyond Deutsche Bank’s ability to pay, given its $18 billion market capitalization before the story broke.

A Deutsche Bank bankruptcy from this raid would thoroughly disrupt the EU’s economy.  But never mind that, because Panic of 2008, and somebody’s gotta pay.

No.  This is nothing but another raid on OPM by Obama and his coterie of Progressives, whose motto harks back to an earlier time: “Anything that ain’t nailed down is mine, and anything I can pry loose ain’t nailed down.”