Tag Archives: taxes

A Misunderstanding

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Or a non sequitur. A recent Wall Street Journal editorial was headlined thusly: Should There Be a Tax on Soda and Other Sugary Drinks? The subhead had this: Supporters say it is an effective way to cut obesity. Critics say the health benefits are far less than claimed.

The piece then proceeded to a debate between Kelly Brownell, Dean and Robert L Flowers Professor of Public Policy at Duke University’s Sanford School of Public Policy, and William Shughart II, J Fish Smith Professor in Public Choice at Utah State University’s Jon M Huntsman School of Business, among other titles.

Both entirely missed fundamental point. The answer to the headline question can only be a resounding “No.” The debate was a waste of bandwidth and of newsprint and ink because it doesn’t matter whether taxing sodas is an effective way of curbing obesity.

As James Madison once said in the Third Congress about a related subject,

Mr Madison wished to relieve the sufferers, but was afraid of establishing a dangerous precedent, which might hereafter be perverted to the countenance of purposes very different from those of charity. He acknowledged, for his own part, that he could not undertake to lay his finger on that article in the Federal Constitution which granted a right of Congress of expending, on objects of benevolence, the money of their constituents.

Charity of one sort, or charity of another sort, or simply the Federal government presuming to pressure us toward government’s definition of society, it’s all the same. And so it is with taxing as well as spending. Our tax code, in no way shape or form, should be used to conduct social engineering. Full stop.

Some Economics Numbers

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…from the Tax Foundation, via AEIdeas. First this graph (right-click on it to get a bigger, more readable version):TaxMap_100-Map

The figures are regional price parities of $100 for each of the 50 states, where the national average price is taken as 100. In other words, whereas on average across the whole country, $100 would buy $100 worth of goods, in California those $100 would buy only $89 and change, in Arkansas those $100 would buy a bit over $114 worth of the same goods. The bulk of the differences across the US was driven by relative housing costs: California’s housing, for instance, costs one-third more than the national average while Arkansas’ housing is one-third cheaper.

Mark Perry expanded on these data in his article at the AEIdeas link above, and adjusted per-capita personal income for differences in personal taxes and those price levels. California, based solely on income, ranked 12th in the nation at $48.5k per person. After adjusting for California’s tax bite and pricing, though, the value of a California’s average citizen fell to just $34.8k, dropping California to 37th in the nation the value of that nominal income.

Arkansas, on the other hand, started out 43rd in unadjusted income, with a citizen getting $36.7k. After tax and price level adjustment, though, the state rose to 31st, with that income becoming $35.5k.

There’s something to be said for cost of living and taxes in determining where actual prosperity resides.

Another Government Has Shut Down

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…at least partially, and again over Democrats’ intransigence with fiscal responsibility. Tom Corfman, of Crain’s Chicago Business:

The financial situation in Illinois has been dire for a number of year. What brings it to a head is the election of Governor Bruce Rauner, a Republican with a strong agenda to change the state. At the same time, he faces opposition from the Democratic legislature and their constituents.

Indeed. Rauner won’t agree to any tax increases unless the Democrats agree to making the state more friendly to business: which means reducing Illinois’ regulatory environment, reducing spending (including on the Teachers Union’s schools), and reducing taxes generally, especially on businesses.

But those Democrats have to have their spending. Never mind that the state has the nation’s lowest credit rating, the nation’s most underfunded state pension system, and the nation’s largest deficit at the state level.

It’s only money.

Progressive Tax Credits

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Targeting youth unemployment, Hillary Rodham Clinton plans to propose tax credits to encourage businesses to train young people and offer apprenticeships to develop lifelong job skills.

Clinton’s campaign said she would outline a proposed tax credit of $1,500 for every apprentice that a business hires….

Here’s a thought. How about lowering taxes altogether and getting the tax code out of the business of social engineering? With suitably low taxes, you wouldn’t need to play games with taxes as inducements to do this or as discouragements from doing that.

With suitably low taxes and the code out of the business of social engineering, businesses could spend their energies on sound business planning rather than on shopping around for a tax deal.

With suitably low taxes and the code out of the business of encouraging this or discouraging that, there’d be less need for special interest groups or lobbyists to push for this or that Very Important Consideration in our tax code. (Yeah, yeah, I know.)

There’s this, too, in Clinton’s plan:

The campaign said the tax credit proposal would require accountability for employment and earnings outcomes for businesses receiving the credit. Apprentices would need to be registered in order to be eligible.

The Progressive gives, and the Progressive takes away.   The savings gained from her tax credit will be fully recouped in the costs of compliance. However, the government will grow, and more IRS bureaucrats will be hired, so it’s all good.

Note, too, that this doesn’t begin to address jobs availability in the ensuing robust, growing economy.

Business Investing

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US businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital.

Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development.
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As the trend picks up steam, so too has debate about whether activist investors—who take sizable stakes in companies, then agitate for changes they think will boost share prices—have caused companies to tilt too far toward short-term rewards.

Vipal Monga, David Benoit, and Theo Francis in their Wall Street Journal article at the link lay the bulk of this reallocation of business funds to activist investors demanding a prompt return on their, and other investors’, return. In truth, there’s a lot to this.

There’s another factor though, that plays at least as important a role: government regulation. Regulation compliance cost the US $1.86 trillion in 2013—11% of our GDP. That’s the general case; there also are regulations surrounding increasing—even improving existing—physical plant. The EPA’s new water “protection” rule, for instance, gives the EPA—the EPA!—a say in whether, and under what conditions, a new factory can be built.

And taxes. Despite lots of Congressional chit-chat, there remains on the books, for instance, the medical device tax of Obamacare, a tax that takes money off the top line revenue—revenue coming into a company before the first dime is spent on company-related things. A tax that’s already caused companies to cancel expansion plans or to move them overseas.

Regardless of the cause, though, whether activist, regulation, to taxes, this misallocation of funds can only have a negative effect in the mid- to long run, even though it’s a short-term good for investors like me. This sort of thing is bad for business’ competitiveness and bad in the aggregate for American global competitiveness and technological leadership.

Should our government do anything about this? Of course not, at least not directly. It is bad business to allocate all those funds to buybacks and dividends at the expense of expansion, upgrade, and innovation, but the real economy, the private economy where actual citizens and market participants live and work, will do a fine job of handling this. There’s no need for government to “get impatient” and step in, because the time lags between the stock market and the actual economy are so variable and unpredictable. Which lags make it positively counterproductive for government to interfere.

It would be good, though, if our government moved to reduce the cost of regulation. A good first step would be simply to rescind a random 10% of existing regulations, and then begin serious rescission from there. After that, the real economy will deal with the activists.