Tag Archives: taxes

Contradictions

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Japan raised its sales tax—consumption tax/value added tax—and promptly saw a 6.3% year-on-year drop in GDP in the last quarter of 2019. Consumer spending (did I mention that the tax was a consumption tax?) fell by 11.5% that quarter.

Color me—and hosts of others much smarter than me—unsrurprised.

Now come the contradictions, from the just US Congress-revived IMF, yet.

The International Monetary Fund thinks the consumption-tax rate will have to rise to 15% over the next decade, and to 20% by 2050. But first the fund’s wizards say Tokyo must expand its Keynesian spending to make the economy “strong” enough to bear the tax hikes to pay for the spending.

Increasing government spending, which is tax increases now or later, reduces consumption by a number of paths: it takes money out of consumers’ hands directly via those taxes; by competing for the same goods and services as consumers’, it drives up the prices of those goods and services to consumers, which reduces consumers’ purchase of them; by competing for the same resources that private enterprises need to produce it drives up the price of the resources, which drives up the prices of the end-product goods and services to consumers, which….; and it crowds out many private enterprises and consumers altogether.

And so, of course, it’s necessary to raise even further the taxes on all that reducing consumption.

Business is falling off. Gotta raise prices to make up for the decreased revenue.

Make sense? It does to the IMF. And to the Japanese government.

Taxes

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It seems Amazon isn’t paying enough corporate taxes to suit Progressive-Democrats.

In its annual regulatory filing with the Securities and Exchange Commission, Jeff Bezos’ sprawling e-commerce empire said it paid $162 million in federal income taxes on $13.3 billion of US pre-tax income, an effective tax rate of 1.2%. It deferred more than $914 million in taxes.

All perfectly legal, too, yet the hue and cry is loud. Matthew Gardner, Senior Fellow at the Institute on Taxation and Economic Policy, for instance:

This means that instead of avoiding 100 percent of its income tax liability, Amazon appears to have avoided only 94 percent of its tax bill last year[.]

Not at all.  Amazon, unless Gardner is going to allege actual tax fraud, paid 100% of its actual tax liability, after accounting for all of the credits, deductions, and other loopholes our byzantine tax code allows corporations.  Amazon just didn’t pay its “fair share,” whatever carefully nebulous sum that amounts to.

The hue and cry is accurate, though not in the way the Left would have us believe.  As someone almost said once, the fault is not in our corporatoins, but in our tax code.

Everything Amazon did was legal, and it would have been an abuse of the company’s fiduciary duty to its owners not to take advantage of the opportunities—Amazon’s tax bill and overall tax rate are an illustration of the failures of a tax code that has all of those vasty loopholes, gaps, deductions, credits, etc.

A single low, flat tax rate that treats all income identically, regardless of source, and that has no loopholes, gaps, deductions, credits, etc, would do wonders for our economy, increase the revenues ultimately remitted to Government, and enhance both private citizens’ and Government’s (in that order) ability to see to the least among us.

Mind you, that low, flat tax rate should be applicable only to personal income. Corporations should be assessed no income tax at all; they don’t pay those taxes anyway, not even that 1.2%: their customers, ultimately us individual persons, do in the form of higher prices.

Big Government vs Free Market

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An economist says Apple isn’t paying its fair share of taxes. There is many things about which to criticize Apple, but this isn’t one of them.

Davos lights insist that companies are responsible to and for their employees, their suppliers, and their communities. Indeed. And the way to execute that responsibility is to be responsible first to companies’ owners. That’s what helps companies thrive so they can have, and have more, employees and suppliers—which money rotation funds those local communities.

What is Apple’s “fair share?” This economist declined to say—just that it ought to pay more.

The economist insists, instead,

the first step to being a good corporate citizen is to pay tax….

But how much? There’s that carefully undefined “fair share” bit, again. And: why should a business pay any tax at all? After all, the business might sign the tax payment check, but it’s the business’ customers who pay the tax, in the form of higher prices to cover the tax cost. Again, this is carefully unaddressed.

Instead, the economist and the lights of Davos insist that it’s somehow wrong for businesses to minimizes its costs and that it’s somehow wrong for nations to compete on tax rates in order to draw business investment so their citizens can have jobs and prosper.

This is Big Government ideology.

In a free market environment, though, nations do compete on tax rates for the benefit of their citizens. Businesses do work hard to minimize all costs so as to compete effectively on pricing, which directly benefits their customers and which indirectly benefits their communities from localities up through their nations.

In a free market environment, a good corporate citizen works to compete and so to thrive and so to take care of its employees, its suppliers, and its community.

Medicaid Block Grants

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The Trump administration is planning to set up procedures for allowing States to convert the Medicaid funding they receive from the Federal government from matching funds to block grants.

The new procedures would represent a large change.

Medicaid funding is open-ended, meaning the federal government matches state spending. If that funding is converted to a block grant, a state could get a limited, lump sum of federal money instead.

There are two key differences here. One is that the funding would go from strings-attached matches to no-strings block grants. The other is that the decision to go to block grants would be each requesting State’s, resulting in less Federal control over that State’s internal affairs.

Of course, this has vested interests twisting in their knickers.

Consumer groups and [Progressive-]Democrats say that limitation means thousands of people could lose Medicaid coverage or be unable to enroll if states’ costs rise or enrollment swells.

This is cynical and disingenuous. Whether a State’s citizens lose or can’t get access to their own State’s Medicaid is a matter strictly for, and wholly under the control of, the politicians and bureaucrats in that State’s government and the citizens who elect those politicians—who are the bureaucrats’ direct bosses.

At bottom, there is nothing at all preventing a State from reallocating its own spending to cover those costs or enrollments. Or of limiting access to ensure the truly needy can get the aid, limits that too often are blocked by those Federal strings.

Universal Basic Income

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It’s creeping ever more deeply into the Progressive-Democratic Party’s psyche and ideology. It’s an idea that was first dreamed up in the ’70s, and it remains an idea that can only fail were it to be implemented.

Giving everyone a basic income won’t improve anyone’s income; it’ll only incentivize employers to pay a wage diminished by the amount of the guaranteed government payment.  But the failure runs much deeper than that.

Such a scheme is inflationary: the outcome can only be a spike in inflation followed by price stabilization at a higher price level.

Consider an economy in which a producer has two widgets to sell, and two consumers each have a dollar. The producer can sell his widgets for a dollar each.

Now give the two consumers their basic income of $1,000 (let’s say).  The producer still has two widgets, now the consumers each have $1,001 dollars, and the producer can sell his widgets for $1,001 each.  That’s price inflation to a new level—but the consumers’ buying power remains unchanged*: they each still have only enough money to buy one widget, and no more.

Nor is there any incentive—or buying power capacity—for the producer to make more widgets to sell. The producer is getting those same dollars, devalued by the same inflation, that his consumers are getting (from his sales) and so he’s getting no added value to induce him to produce more.  Furthermore, he still can buy the same amount of widget production inputs, and no more; he cannot produce more without incurring greater cost.

 

*Actually, buying power decreases on net for producer and consumer alike, not from the weaker dollar, but from fewer of them in hands of both.  The money for that guaranteed income can only come from one or more of three (sort of) sources. The money must come from the government’s printing press—but that’s the same as the guaranteed income; the dollars just follow a more convoluted path into economy than direct disbursement.  Or the money must come from taxes, which takes money away from consumers and producers directly and leaves them with fewer dollars with which to buy goods and services or to buy inputs to production. Or the money must come from borrowing—which is future taxes or future money printing.

It’s hard to believe that all of those politicians slept through their high school economics, whether they’re today’s crop, like Progressive-Democratic Party Presidential candidate and minor town mayor Pete Buttigieg, newly graduated from high school, or Progressive-Democratic Party Presidential candidates and Senators Bernie Sanders (I, VT) and Elizabeth Warren (D, MA), who were in high school the first time this idea was floated those years ago.