Thursday, January 10, 2013

An E-Letter to Harold Meyerson (and a white board lesson)

Dear Mr. Meyerson,

In your Washington Post Op-Ed, A tax deal only the ultra-rich can love, you, I'm afraid, display a bit of ignorance with regard to the investment/expansion pursuits of "virtually every major U.S. corporation." And you seem to lack a basic understanding (save for newly issued stock) of a typical stock transaction. I hope herein, with all due respect, to disabuse you of those misconceptions.

Beginning with the latter: You wrote
Taxing investment income at a lower rate than labor income presumably fosters more investment in the U.S. economy. But say you buy a share of General Electric. The money you pay for your stock will be invested both at home and abroad, because GE, like virtually every major U.S. corporation, is a global company that retains a U.S. headquarters.

Now, let's pretend you're my client, and you call me up and say "Marty, buy me a share of GE." I have news for you, I won't be wiring money from your account on to GE's headquarters (for it to spend on some foreign project) in exchange for a share of their stock. You see they're not issuing any new shares these days. Not that I won't fulfill your wish mind you, it's just that I'll be buying it from some other bloke who's looking to sell his share of GE. If he happens to be a U.S. citizen, there's a good chance the money you pay for your stock will all stay "at home". I'll bet if you thought it through, you'd have realized this yourself. And I don't suspect you've here discouraged your readers from investing in U.S stocks. So no harm done.

You do them a real disservice, however, where you say:
Now suppose you’re an assembly worker at a GE aircraft engine parts plant in Dayton, Ohio. All your work takes place in the United States, and most of your spending is local, even though many of the products you buy are made abroad. Yet our GE employee may be taxed at a higher rate than our GE investor. We reward the investor for, in effect, sending money abroad, while the worker who produces wealth entirely within our borders gets no such reward. Globalization has completely changed the investment patterns of American corporations, but our tax breaks for investments chug placidly along as though U.S. companies still confined their work inside our borders. 

I'm thinking you rushed through this one.

For starters you carp about GE making the most of its resources by availing itself of international opportunities, then literally acknowledge the GE employee does the same ("many of the products you buy are made abroad")---then, amazingly, two sentences later, you suggest that the GE employee "produces wealth entirely within our borders." Sadly, perhaps out of desperation (a deadline to meet?), you entirely contradict yourself. But, honestly, that doesn't bother me so much either.

My real problem lies with your implying that the business GE (and the GE employee) does abroad somehow occurs at the expense of the U.S. economy. That it somehow doesn't produce wealth within our borders. Frankly, nothing could be further from the truth. In fact, institutions and individuals allocating their resources in the most productive manner possible, wherever on the planet those opportunities present themselves, is an unequivocal benefit to the home economy, and thus the consumer at large.

You'll see exactly what I mean if you'll take just a few minutes and watch the following presentation (here's the link to the original article). 

All this said (and shown below), please don't be too hard on yourself. Your misunderstanding of how money flows internationally is one that plagues all too many consumers, as well as columnists. Just vow never to make this mistake again.

Marty Mazorra

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