How About a Zero Corporate Tax Rate? (video)

The following comes from a spirited debate, via email, I had with a good friend last Friday. Prompted by that day’s post Get Fat Cat.

He stated: “The real problem I have is with USA corps being allowed to avoid any taxation at all on monster profits because of the way their lobbyists write tax law for our congress to pass. Think GE. and before you start……….screw their stock holders……….we should all pay “friggin” something. You are a fair man…..certainly on this we can agree.”

My reply: “How about a zero corp. tax rate? There’d be less lobbying, much more capital investment, and substantial economic growth. Ultimately individuals pay all the tax in one way or another anyway.”

He got the last word with something about my zero chance of ever holding public office due to my frequent use of “friggin” and, as evidenced by “crap” such as the disgraceful notion of no corporate tax, that I have surely “slipped into using drugs”.

The funny thing is, aside from being sober, I wasn't trying to be funny. Indeed, what is a corporation? Is it not an inanimate entity? Is it not simply the things "it" owns – i.e., buildings, equipment, inventory, etc.? And, as Milton Friedman pointed out, buildings don’t pay income tax, people (customers, employees, and, yes, stockholders) do.

Think about it; the existence of a corporate tax, as my dear friend suggests, allows for the politician to effectively divert private-sector profits into campaign contributions. I’d go so far as to say that if we were to eliminate it altogether, and thus the lobbying it inspires, overall tax receipts would grow significantly.

I therefore retract my prior pleas for a more business-friendly government. Clearly, we don’t need, nor should we want, our policymakers to be more business-friendly. What we need is for them, aside from enforcing laws protecting one man from harm at the hands of another, to friggin stay out of business altogether.

As for my friend’s assertion that I’m a fair-minded man, I prefer to think myself a free-minded man. Freedom is an easily distinguishable concept; fairness on the other hand is entirely subjective. And truly, as Mr. Friedman so aptly put; “a society that puts fairness before freedom will get neither, while a society that puts freedom before fairness will end up with a great degree of both.”

Get Fatcat

There's a growing contingent of well-meaning folk who, inexplicably, believe that raising tax rates for those they deem "wealthy" will literally solve our nation's budget woes.

They've waged a war of words against the "rich". "They're not paying their fair share" is the battle-cry. "We wouldn't need to cut spending, we wouldn't need to leave cold the needy if we would make the "fat cat" pay up."

At some level, and I have to dig deep to find it, I understand. But that's a level that makes absolutely no practical sense. Every presumption in the Robin Hood of today's position is one to be easily refuted. So easily that each, upon objective consideration, provides its own refutation. See if you agree:

#1: That the politician would be more stewardly with Fatcat's money than he would be himself.

#2. That the politician is better at creating jobs than Fatcat.

#3. That Fatcat's investing in his own or other people's enterprises is not an economy-expanding and tax-generating effort.

#4. That Fatcat's lavishness is not helping the economy by supporting producers, wholesalers, retailers and their employees...

#5. That Fatcat putting his undeserved excess in the bank does not add liquidity to the economy, that it does not keep interest rates low and fund loans to businesses and home-buyers.

And #6. That if we balance the budget through tax increases the politician will stop there, that he'll not find new vote-garnering causes to exploit, and that he'll never again turn our nation's balance sheet into an utterly disgusting financial obscenity (don't you dare take sides on this one, both parties have had their way with our money).

Over-Coddled

As I suggested Monday, in my arrogant opinion, Adam Smith was right on; protecting the individual's freedom to pursue his separate interests is clearly in the best interest of society. There is however a place, as one reader commented, where a glaring distortion exists... That would be the building on 1st Street, nestled (ironically) between Independence and Constitution avenues in Washington, DC.

In the world of big government (today's world), the self-interested politician is in a unique position to exploit the confused state of the voter who believes the essential role of government is to ensure his well-being... It's in the politician's self-interest, or so he believes, to promise this voter a heavily subsidized piece of the pie...

It appears however as though the glad-hander, at long last, is beginning to realize that promising that which he can no longer deliver (and is in no one's best interest) is anything but a self-serving act... That bloated budgets and debt-ridden balance sheets ultimately lead to attack from the very people he pretends to help...

Take Europe for example... Governments have borrowed and spent way beyond their means, have entitled and taxed all they can, and are left with literally no choice but true austerity... Consequently, thousands of public-sector employees (500,000 in London just last month) are in the streets, screaming for the printing of more money - oblivious to the fact that their life-long reliance on bureaucrats (like over-coddled children) is the very cause of their angst... and that their bureaucrats' short-sighted distorted view of the world (like over-coddling parents) is the very cause of their country's (like the over-coddled/coddling family) predicament...

Now take our bureaucrats, please, someone, take our bureaucrats...

Have a nice day!
Marty

April 13, 2011 Market/Economic Commentary (video)

Repeat Pizza

My idea of a good time, as you may have gathered, is immersing myself in the kind of stuff that would cure most insomniacs... Specifically, economic history and theory...

As I travel back through the days of Milton Friedman, F.A. Hayek, J. Maynard Keynes, Karl Marx and Adam Smith, I realize that, when it comes to economics, there are two distinct schools of thought; one advances the notion that the economy cannot effectively function without the helping hand of government (ala Keynes and, at the extreme, Marx), the other says the economy is best served in the hands of the private sector, leaving the individual free to pursue his own separate interests (ala Smith, Hayek and Friedman)...

Would you agree that the latter, whether or not you view it as the path to macroeconomic success, is simply human nature - that whether we're pizza chefs or politicians*, each of us, in our own way, will always pursue our own separate interests? And is it not in the pizza purveyor's self-interest to provide his customer with the absolute best pie he can profitably produce? It is if he hopes for repeat business... And is not the pizza purveyor's profitability in the self-interest of the pizza lover? It is if he hopes for repeat pizza...

(*we

April 6, 2011 Market/Economic Report (video)

Unequivocally Balanced

Every now and then a most well-meaning allegiant will debate with me the notion that the unilateral opening of our borders to any country desiring to sell us its wares is (as I suggested last week) a good thing... "How can higher unemployment be a good thing?" he contends... Implying, rightly so, that the import of low-cost foreign-made goods hits certain U.S. producers...

As Milton Friedman was fond of saying, "it's a case of the visible versus the invisible." The visible being the man who loses his job due to his employer's inability to compete in the global marketplace. The invisible being the man who, were the government to protect any domestic industry with quotas and tariffs, would either lose his job due to the attendant decline in consumer discretionary income (i.e., the consumer pays more for the protected product) or will not advance into the otherwise expanding U.S. industries - which would include those benefitting from our capital/financial account* surplus... That's right, we do indeed have a surplus, a substantial one in fact...

*The capital account lists capital transfers and transactions involving natural and intangible assets... The financial account, a subdivision of the capital account, lists trade in businesses, stocks, bonds and real estate...

Influenced as we are by the media, the pundit and the politician, we (consumers) simply don't consider what happens to all the U.S. dollars we send to places like China... The truth is, our trading partners happily take those dollars and buy (or invest in) stuff from the U.S., or they buy stuff from other countries and those countries buy stuff from the U.S... U.S. dollars, you see, are nothing more (or less) than claims on U.S. stuff...

Therefore, contrary to populist opinion, the rest of the world desperately wants U.S. stuff - even, if not especially, low-yielding U.S. treasuries...

Simply put; they trade stuff they produce for dollars we produce, and vice versa... I.e., while it comes and goes in different forms, foreign trade is indeed "trade", and is therefore always, and unequivocally, balanced... don't let anyone convince you otherwise...

Have a nice week!
Marty