Tag Archives: taxes

An Economic Misunderstanding

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In the wake of Georgia’s decision to halt special tax treatment for Delta Air Lines, Inc, over the company’s decision to cut ties with the NRA, Fox News economics pundit Neil Cavuto asked whether the State’s action “was an example of government interfering in the free market”.

This misunderstands what’s happening.  The government interference in the free market was the State’s gerrymandering its tax code to give special treatment to a particular company.  Stopping a particular special treatment is a step back from that government’s interference, not an extension of it.

Buybacks and Tax Cuts

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Who benefits most and what was the value of the Trump administration’s tax cuts, if all that companies are going to do with their tax cut related income boost is use it to buy back shares?  This seems actually confusing to some folks on the Left.

Here are some of the happy totals.  Share buybacks have run to some $200 billion in the last three months.  Moreover,

Of the companies in the S&P 500, about 44% have said they plan to reinvest some portion of their tax gains into capital expenditures or wages, while 28% said they would use them to increase shareholder returns, Morgan Stanley found in an analysis of earnings transcripts. Its own analysts expect companies to spend about 43% of their savings on buybacks and dividends, and 30% on capital expenditures and labor.

Progressive-Democrats are making the argument that the buybacks benefit only the 1%.  Certainly, stockholders—those owners of the company—who choose to accept a buyback deal are better off: they get something of value to them that they didn’t have before, which is more cash in their pocket.

Progressive-Democrats actually think the money stops there.  Or so they imply.

It doesn’t.  The money doesn’t disappear under a rich man’s mattress; he didn’t get rich doing that.  No, the tax reduction money that goes to capital expenditures improves production efficiency, which lowers costs to the consumer, which raises demand for the product, which increases pressure to hire more workers to make more product.

Money spent on buybacks and dividends (another bugaboo of the Left—how dare a company return any of its money to its owners) is money received by the company’s owners, who include not only the stinking rich but ordinary folks like you and me, either as investors ourselves or as beneficiaries of company pension plans or as holders of 401(k)s and IRAs.  That money received by us, including the Evil Rich among us, then gets spent.  That’s increased consumer demand, which increases pressure to hire more workers.  Even the buyback and dividend money that goes into those retirement accounts gets spent—we’re all going to retire someday, and if we die, our heirs will spend the money.

It stretches credulity to believe that folks as undeniably brilliant as Progressive-Democrats hold themselves out to be don’t understand this.

But, hey—votes.

The 529 Plan Expansion

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Recall that the tax reform enacted last December expanded the usability of 529 Plans to include expenses for K-12 education.  Now some are worried that this will harm State tax collections.  It’s a bogus beef on a number of fronts.

In December, as part of a broad tax overhaul, Congress expanded the accounts to cover up to $10,000 a year in expenses for kindergarten through 12th grade.

State budget officials are now concerned that a large number of parents will use 529 accounts to pay private-school tuition, giving them a new write-off for their state taxes.

School choice—the horror.  How terrible it is that parents have a way to help their children escape failing public schools or simply to transfer them to schools of their choice rather than be faced with the often poor choice of public school or home school.

There’s this bit of disingenuosity, too:

That could result in potentially millions of dollars in lost tax revenue at a time when most states are struggling to close budget deficits.

“I’m worried that families could use these accounts to avoid paying state taxes,” said Illinois state treasurer Mike Frerichs, a Democrat. “This is only going to put a deeper hole in the budget.”

This is especially rich coming from nearly bankrupt Illinois and that State’s Treasurer.  What’s actually blowing a hole in Illinois’ budget is its profligate spending, in Illinois’ case wastrel spending on public union pensions and teachers union pensions in Chicago.  Beyond that, using 529s to defray the costs of educating a child in Illinois isn’t tax avoidance, it’s parents seeing to the welfare of their children.

Then there’s this bit.

The Cruz provision [the amendment that inserted the 529 expansion into the tax reform bill] is projected to cost the federal government $500 million over nearly a decade, but it could cost the states much more, research suggests.

This is nonsense. Aside from the fact that it doesn’t cost the Federal government anything to not get what doesn’t belong to it, it’s also not costing the States anything for the same reason: the money isn’t the States’; the money belongs to the citizens of the States.

Furthermore, instead of worrying about deficits caused by not getting revenue that isn’t theirs, the States should worry about deficits caused by their profligate spending—and that’s not just Illinois.

This misunderstanding by American Enterprise Institute‘s Deputy Director of Education Policy, Nat Malkus, is surprising.

It’s not federalist at all.  I don’t think that the federal government should be cavalierly making problems for states by messing with state taxes.

Federalism isn’t touched by the 529 expansion.  That expansion doesn’t impact State taxes in the slightest; those remain the sole decision of the State governments.  All that’s “messed with” is tax collections, collections of OPM.

Be Like Europe?

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Emulate Germany?  That’s the constant refrain of the Left and of their Progressive-Democratic Party.  After all, Germany is running large budget surpluses, taking the second largest bite out of German wages of all the OECD nations, at nearly 50%, overcoming government spending running 45% of GDP.  Here is an indication of the contempt with which German politicians—both “conservative” and Leftist—view German citizens:

[T]he perception of tax cuts in the country’s political mainstream ranges from slightly shameful to outright evil. Many conservatives see them as overindulgent toward voters, while the center-left views them as morally indefensible gifts to the rich. All parties, with the exception of the pro-business Free Democrats, favor a high degree of redistribution.

“You need high taxes in order to be civilized,” said Sven Giegold, who represents Germany’s Green Party in the European Parliament. “We are very far away from the government having too much money.”

It seems Germans, like Herb Croly’s Americans, are morally and intellectually inadequate to serious and consistent conception of [their] responsibilities as…democrat[s].

And we should be like them.  Sure.

The New Tax Law and Bankruptcy

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The Wall Street Journal is quick to point out how the tax reform bill passed last December does little to help failing businesses.

The new tax law is a boon to most US businesses, but it will make life harder for one type of company: those that are struggling financially or at risk of filing for bankruptcy.

The new tax law was never intended to help failing businesses, though, it was designed to help the rest of us individuals and our businesses—and to help those who are failing do better next time.

The law eliminated a provision that gave money-losing companies a cash infusion in the form of a retroactive federal tax refund by applying current losses to past tax bills. Experts say these tax breaks, called net operating loss carry-backs, gave companies access to money at a critical time….

No, the provision helped current businesses paper over bad decisions and outright failure by letting them rewrite their history; there’s nothing that helped failing businesses do better in future.

The provision, in fact, was written in the aftermath of WWI, ostensibly to help our economy’s manufacturing sector.  On the contrary, though, the provision was enacted to bail out from Woodrow Wilson’s attempts to nationalize significant fractions of our industrial sector and to attempt recovery from Wilson’s drastically inflationary policies.  Any policy enacted for bad reasons always will fail in the end.

“It doesn’t fix the business, but it fixed the balance sheet,” she [Bankruptcy lawyer Cathy Hershcopf] said of the tax benefits.

Indeed.