Tax Code Reform

[campbellcj]

One point we need to keep in mind regarding "non-discretionary" federal spending -- est 54% of total budget this year -- is that the larger the government and military bureaucracy becomes, the larger and faster this number grows. 40 years ago, it was 26% ! Remember that government employee medical and retirement benefits are long-term liabilities on our national balance sheet.

The present value of these liabilities alone is currently $2.9 Trillion!

We are not just talking about welfare or other classical "entitlements", which in reality acount for a tiny portion of where our obscene tax dollars end up.

The real problem is bloat, greed and waste in all levels of government. That makes the "cost" of your stereotypical uneducated, unemployable single mother plus 5 kids on welfare look like pocket change. The true cost of the ridiculous overspending of recent years is far, far greater than the annual defecit figure for any given year....it actually compounds for decades into the future, leaving our kids and grandkids to foot the bill.

[campbellcj]

By the way, it is a bit off-topic from a core discussion of tax reform, but David Walker of the GAO has recently posted another of several excellent and frightening presentations here:

http://www.gao.gov/cghome/fiscalimbalance/imbalance4604

This man is essentially our nation's lead "accountant" and I figure he knows what he's talking about...and I wonder who's listening...

[304065]

OK Cam, I see your point now. Liberation of capital from taxation frees up a lot more of it for investment, which tends to create greater demand for higher returns, increasing the multiple you pay for an otherwise lackluster business. Sounds a little like 1998-2001, doesn't it? "Unproductive" business models, such as those that lose money or are just plain sillly ("silly" means at odds with fundamental realities of the universe like scarcity) like the online stores that would give stuff away and expense the loss as marketing suddenly become highly valued due to the availability of capital for speculation.

Consider the global low interest rate now: if interest rates are a proxy for cost of capital, then cost of capital must be pretty low. But that verges on the monetary policy debate which deserves its own thread.

We are never going to eliminate government spending, and therefore government waste, entirely. Anytime you have a command sector vs. a demand sector, your allocations are going to be infefficient. For that matter, the private sector has inefficient allocations all the time, but profit maximization and LIMITED capital (vs. government programs: when's the last time you ever heard of a government agency saying, "We've done a great job and are requesting LESS money this year-- not merely a "Decrease in the rate of increase" which is called a "cut" in government doublespeak, but an actual dollar decrease) will mean that inefficient businesses aren't in existence for long.

You make a good point about it all deriving from raw materials/factor inputs. Look at OUR jobs: ultimately we aren't the generator of value, the client is. Somewhere downstream you have someone who is combining intellectual capital with raw materials and increasing wealth. We have done a pretty good job of transitioning from an agrarian economy to an industrial one, and then to a post-industrial service economy, that relies less on raw materials for the production of finished goods than it does for factor inputs like energy and food.

Where's the greater margin? Is it in the conversion of factor inputs like petroleum, electric power and human labor, to manufacture injection-molded plastic bags in Shijiazhuang, China (saw that once), or by wrapping people's stuff in them at Wal-Mart in California (but not in Englewood, at least for now)? Isn't it definitionally true that the greater margin is found at Wal-Mart, even though retailing is a pure service function, because that's where the bags end up?

I guess the point is that a post-industrial economy doesn't continue to consume raw materials at the same RATE as an industrial one, although it's a moot point because the sheer size of the service economy means that resources are being consumed pretty damned quickly. Depends on whether you consider that to be a United States problem or a human problem, although I submit that the former pretty rapidly becomes the latter.

Ed, I take your point about the troubles that the incumbent has. Remember that with regard to the airline industry all is not what it appears. Take a look at JetBlue's 10K. Note that they spend less than $60mm per year on Aircraft Rent for their fleet of A320s. Now check the table that discloses that operating lease expense spikes to $97mm in 2004 and goes over 100 for the next few years. Hmm, where are they going to get the money to pay for their aircraft leases? They just filed an universal shelf for $750mm. .. answer. . . INVESTORS! Lower operating costs, due to the lease structure, allow them to operate profitably while offering discounted fares, which tends to erode the market share of the "network" carriers. Smart, I'll hand it to them, and the competition is good at lowering ticket prices for the consumer, but over the long term they need to eliminate one of the other market participants. Except that SOP in the industry seems to be to operate from within the shield of Chapter 11! If the playing field were ever truly leveled, the outcome might be different.

[Superman]

Okay, I've asked for information about taxes paid by corporations, and essentially what I've gotten back is some opinion that corporations should not be taxed. Interesting. Hope some of you guys are sitting down.....

I do not personally agree with our nation's decision to allow the creation of these new entities, these beings called "corporations" as entities separate from their owners. This creates beings that are essentially sociopathic. No reason or inclination to behave properly. Every reason to maximize profits as a sole agenda. No reason to be socially responsible, except where irresponsibility might cause profits to fall. And here comes another good one: In my view, the one thing that I would change as Emperor, the one single thing that, if fixed, could give rise to the most good for the greatest number of people, is if we removed the corporate or business lobby from our political process. Why in the world we allow these creatures, who cannot vote, and whose agenda is a sociopathic focus on profits exclusively, to participate in our public policy making process, is beyond me.

I wonder if you guys are inclined to evaluate and comment on this statement. (winking face goes here, as I know some of you believe the insanity that "what's good for corporations is good for the rest of us")

[304065]

Super, it does not advance the discussion to assert your opinion without at least SOME objectively referenceable data to support it. For example, if you think that the taxes that corporations pay are too low, tell us why based on something other than you think they are sociopathic.

Corporations are "legal persons" that cannot feel and the entire reason they exist within the taxonomy of entities is for profit maximization. Corporations, like limited liability entities such as LLCs, LLPs, GMBHs and the like, have the common characteristic that their members are not individually liable for the obligations of the corporate entity. These characteristics evolved over the last 500 years or so as a means to facilitate the limitation of RISK associated with a business venture: people are much less inclined to contribute $500 to a joint-stock company if when that company goes bankrupt their personal assets are at risk of loss.

Further, corporations are not in business to employ people or to necessarily improve the world. They exist for one reason only, and that is to maximize profits for their stakeholders. The law of corporations does not encourage them to consider "alternate constituencies" like the public, future generations, the environment, etc., except where the extent to which those things impact return to the stakeholders.

Now you will probably regard this taxonomical description of the corporation as playing right into your hands, but not so fast: those are its legal characteristics and there is no changing them. Do you weep for the small fish that are consumed by the shark, or does watching lions take down Gazelles on The Discovery Channel engender moral outrage? Do you shed a silent tear for the bovine cut down in the prime (pun intended) of its life and slathered in bernaise sauce to appease your prandial lust? If you do we got bigger problems, but the point is, that's the nature of the beast.

Billions of dollars a year are expended by corporations to comply with the myriad of legal regulations put in place precisely to rein in that profit-maximizing behavior to the extent that it is harmful to society. Wage and hour restrictions, work rules, environmental regs, tax compliance, securities laws, bank regulation, insurance regulation, accounting rules, etc., all exist to harness that profit-maximizing legal entity called the corporation and ensure that its natural tendencies are curbed. Which includes limitations on corporate donations to political campaigns and so-called "soft money."

Can you tell me, without using the word "sociopathic" or any other conclusory language, exactly how we should have both civilization and an economy without the use of the corporation? Please describe, in great detail, how we can approximate the same level of output using sole proprietorships, general partnerhips, or unincorporated associations. If you deny that we need civilization or an economy I suppose I can't argue with that, but you would then need to tell me how to feed everybody using the nomadic hunter-gatherer model. The last time I checked the theory of utilitarianism, that model didn't provide the greatest good or do it for the greatest number.

Or is it human nature that you have the problem with?

[Moneyguy1]

I would not see corporations as sociopathic as much as I would see them as schitzoid.

Not meant as a joke, just think about the concept.......