changed to "wealth inequality"

[JohnRoberts]

just a few brief points

laissez faire: abstention by governments from interfering in the workings of the free market.

anyone alive during the 1970's gas lines crisis, recalls how supplies magically reappeared after the government lifted price controls.

Capitalist economy: an economic system based on private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system, and competitive markets.

don't forget rule of law

distribution of wealth: is a comparison of the wealth of various members or groups in a society.

never was equal and it shouldn't be, unclear what it should be, or more importantly should government try to manage it?.

JR

PS My dsl crash was probably me being punished by karma for being too wordy...

 

[john12ax7]

Wealth equality frequently comes up in these discussions.  I think what most people really want is opportunity equality,  which is a far better goal imo,  and sorely lacking in the current system.

 

[JohnRoberts]

I'll take another bite today

I'll try to answer your questions with my view - but they are very hard questions to answer.

Most of the large problems are difficult, or they would already be solved. Politicians are not always motivated to solve divisive problems that they get political energy from, while they will routinely promise easy answers to intractable problems.

I would say a good balance between labor and Capital would be such that the country is politically stable AND business investment is encouraged. 

Political stability is always desirable. We are seeing even foreign nations invest resources in destabilizing democratic western governments.

Economic growth has been identified as a general benefit to society. There are multiple economic machinations in place to encourage growth.  Among these notable are marginal reserve banking, and limited liability corporate structure.  Fractional reserve banking probably predates the US, but the limited liability corporation appears to be a 19th century US development (england passed a limited liability act decades later in 1855).  While it is human nature to want a bigger piece of the pie, we should all agree that making the pie bigger is good. 

When Capital has too much power, wealth inequality increases.

I suspect you are conflating "capital" with management or business operators. The actual capital routinely is coming from a third group (stock market investors, venture capital, etc).  It is an easy argument to make that wealth inequality is at least in part being driven by automation and AI. Technology is allowing us to manufacture more with less human involvement, logically their share of profits is proportionately reduced. 

As wealth inequality increases there is more and more class warfare and several times in history it has led to revolution (Après moi, le déluge).

class warfare is popular because there are less really rich people, so they are easier to marginalize. Revolution has multiple causal factors, typically self-determination (like our revolution against great britain). Perhaps the french revolution could be characterized as having a excess wealth component but they included others (liberty, equality, fraternity... no not frat houses.).

But on the other hand, there should be a balance such that the risk of investing Capital & starting businesses is sufficiently rewarded, i.e. so someone working in a field for a competitive salary might make the risk of starting off on their own for a greater reward.

Not necessarily rewarded, but should not be discouraged or hampered. It is sad to see reports of kids lemonade stands shut down by overactive local regulators.  Most kids of my generation routinely traded labor for cash, cutting grass, shoveling snow, etc. It is sad to see entrepreneurial instincts nipped in the bud. 

The price of labor is determined by supply and demand in the absence of collective bargaining (i.e. unions) or regulations (i.e min wage). Capital has more power if they tend not to be squeezed by tight supply or higher demand. For instance, if there is increased supply made available to counter rising wages (H1-b visas for example) or demand can be reduced in the face of higher wage demands (automation, etc...), then Capital increases power.

Supply and demand is alive and well in labor markets. Despite advancing automation, some industries are desperate for capable, affordable, workers. Sometimes distorting the markets with regulations (like minimum wage) causes unintended consequences. I expect to see more and more automated burger flippers to replace human burger flippers that customers won't pay for.

This is an old discussion but elevated minimum wage makes the bottom rung of the employment ladder too high for unskilled entry level workers to reach. (my first minimum wage job paid $1.25/hr and I was probably barely worth that at first.) Minimum wage jobs should be entry level jobs to help people get into the labor market and move up the ladder.  They were never intended for head of household to support entire families with.

No, it's valued at the price it can be obtained for through supply and demand. For example, if you wanted to hire someone to renovate your house, which would require 100 hours of labor, and the value of the renovations would increase your homes value  by $30k, would you hire someone at $300 an hour? (100 hrs*$300/hr=$30k)  I don't think so -  if the going rate for carpenters was $50 / hr, you would hire someone at the going rate $50.

Most self-employed carpenters work like subcontractors, sometimes you hire them by the hour, sometimes for completing a task.  I have some anecdotal experience. I recently hired a carpenter to repair some water damaged roof soffits. He quoted me an estimate of $100 hour, for two men (him and a helper), and materials.  I settled up with him two times over the course of the work and both times were well under the $100/hr ballpark  (under promise, over deliver.)  I am now contracting the same guy to put a new tin roof on my house (single entirety bid).  In neither case did the value created have anything to do with my hiring decision, it was about my ability to hire a skilled worker locally to do the tasks required, when desired (I had to show some flexibility to accommodate his availability). 

I have been up on my roof before in the summertime, I do not plan to repeat that experience humping around big sheets of tin roofing. 

Cost vs value created is more of calculus performed by house flippers to improve profitability of a short term transaction. Typical home improvement is rarely driven by purely rational calculations, while some home improvement loans may look at it (but bankers mainly care if they can get paid back so probably decide based on equity in the home). 

Business works the same way.  A business employs people that create value that the business realizes for a profit. The lower the cost of labor, the more the business & Capital profits.

True but labor is only one factor, and increasingly not the dominant one (maybe is for service businesses). Back in the 1980s electronic assembly automation gutted the business model of my kit company.  It was Japan then, not China, but I saw the writing on the wall, when name brand commercial SKUs were selling for less than my unassembled parts cost me.  My kit company customer's assembly labor contribution became worthless.

Attached chart shows how capital has become more profitable while worker's share of $$ has declined.

Again IMO conflating or mischaracterization. Capital is passive but can be used to do good or bad. The limited liability corporate structure was set up to empower this capital to be put to productive use, no doubt creating many decent paying jobs over the centuries.

Now unskilled labor (I dislike thinking of anybody as simply labor, because that means they are in line to be replaced by robots).  Anybody with half a brain needs to be stretching as hard as they can to acquire merchantable skills.  Right now truck drivers are in demand, but don't plan on retiring from that gig. It is only a matter of time for self driving trucks to take that job.

====
To get back on topic of finding a solution, what is the ideal remedy? I don't see capital as the problem, but perhaps a target for providing the easy solution, ie wealth transfer using government force... (wasn't that a factor in our revolution? "Taxation without representation." ). 

Simply transferring wealth can not happen without unintended consequences (mostly bad IMO). We need more education of the right kind (not free college and/or saddling students with huge debt for an education they can't apply).  The future will surely be different, and keeps changing. We can agree that the future looks less rosy for unskilled labor...

Let's work to get them skilled up, with skills they can use to create value for themselves and others.

JR

 

[Script]

The entire limited liability corporate structure is set up to allow [...] without exposing the investor to the entire liability of the corporation.

Yes, and this includes all small-scale investors who, by buying stock, become partial owners of the 'means of production'. Especially the latter had been a Socialist dream come true in many European countries in the 1960s and 1970s.

As for this part:

... wealth to be put to productive use, creating jobs, and hopefully a positive return

Yes, ideally. But sometimes what we see huge corporations do is the exact opposite. Money gets hoarded instead of being invested (no different in Japan than in the US or in Europe). Sometimes money is used to buy back stocks, but that too does not exactly qualify as 'investing'.  Rather what it might point to is that they have run out of ideas.

Well, in fact, limited liability also implies that there is no leverage other than CSR. Take a company like Apple, for example (really just an example or one example). It's the most 'valuable' company in the world. What do they do? We are being told that, apart from creating intelligent phones and watches etc, they work on AI and self-driving cars. OK. But what they also do is put a lot of creative energy and money to 'productive use' by hiring accountants and lawyers that help them avoid taxes worldwide.

In 2016, Apple Europe made a profit of €10 billion but paid only €23.47 million in taxes. Is that corporate social responsibility at its very finest?

Was it illegal? No, not according to then current law and regulations. Does it cast a morally dubious shadow on them? Well, everybody is free to decide for themselves. But as some former members of this formum would probably have put it:  "We buy one of their products  (be it a stock or a phone, it doesn't really matter) and we own those practices too" -- albeit limited in liability. Does it make a difference whether individuals buy or don't buy? No, it doesn't -- that's limited too.

As I said before, the money is there. But often it simply does not do what it is 'supposed' to do or what we 'hope' it would do. -- Enter politics...

 

[JohnRoberts]

Yes, and this includes all small-scale investors who, by buying stock, become partial owners of the 'means of production'. Especially the latter had been a Socialist dream come true in many European countries in the 1960s and 1970s.

As for this part:Yes, ideally. But sometimes what we see huge corporations do is the exact opposite.

A serious question is how do we treat corporations? They are clearly not people, but sometimes the lines get blurred.

Money gets hoarded instead of being invested (no different in Japan than in the US or in Europe).

In a market economy there is a negative feedback mechanism. If a corporation sits on a disproportionate amount of cash, not earning a return, people can gain control of that corporation and excess cash buy purchasing a controlling interest in the company stock.  Corporate activists keep public corporations honest (or try to), while profiting from it themselves.

Sometimes money is used to buy back stocks, but that too does not exactly qualify as 'investing'.  Rather what it might point to is that they have run out of ideas.

Stock buybacks are a form of dividend that return wealth to the remaining stockholders without incurring an immediate tax penalty like typical dividends do. It is also financial engineering that manipulates the P/E ratio (P/E is Price divided by earnings per share). Less shares for same earnings makes P/E ratio lower (more attractive investment). 

Sometimes when the immediate future for the business climate is negative or uncertain, business will be reluctant to invest. Declaring normal dividends is generally a long term commitment so not something you can start and stop doing without disruption. Stock buybacks are generally looked upon favorably by the market and can make the companies results look better than they are. IBM was guilty of this for years.

Well, in fact, limited liability also implies that there is no leverage other than CSR.

I had to google that.. "corporate social responsibility" I assume. Leverage for whom to do what?

Take a company like Apple, for example (really just an example or one example). It's the most 'valuable' company in the world. What do they do? We are being told that, apart from creating intelligent phones and watches etc, they work on AI and self-driving cars. OK. But what they also do is put a lot of creative energy and money to 'productive use' by hiring accountants and lawyers that help them avoid taxes worldwide.

Just avoiding taxes is not a magic recipe for success or else charities would all win... While some churches do well over centuries of accumulating wealth.

In 2016, Apple Europe made a profit of €10 billion but paid only €23.47 million in taxes. Is that corporate social responsibility at its very finest?

Paying taxes does not equal social responsibility. Wealthy billionaires like Buffett and Gates, could easily just donate their excessive wealth to government but they choose not to, seeing how government is not very smart about spending. They instead prefer to invest more time and effort into operating private charities (Buffet put a lot of his excess wealth into Gate's charity).

Was it illegal? No, not according to then current law and regulations. Does it cast a morally dubious shadow on them? Well, everybody is free to decide for themselves. But as some former members of this formum would probably have put it:  "We buy one of their products  (be it a stock or a phone, it doesn't really matter) and we own those practices too" -- albeit limited in liability. Does it make a difference whether individuals buy or don't buy? No, it doesn't -- that's limited too.

I disagree with China's practices, but I can't afford to boycott chinese made products, without degrading my standard of living. Knowing how stuff is made it would be incredibly difficult to avoid all Chinese content in products.

As I said before, the money is there. But often it simply does not do what it is 'supposed' to do or what we 'hope' it would do. -- Enter politics...

Politicians are always trying to create positive incentives to motivate business toward some behavior. Large companies can often take advantage of such tax incentives to the point of abuse. While it's all relative... Big companies sometimes get criticized for paying low taxes when they got to deduct large losses (GE lost a ton from their financial operations that reduced their tax liability for years.)

Politics already attempts to keep church and state separate. We need a similar dictate to keep business and government separate. One of the few (only) good concepts to come from the "occupy wall street" crowd.  Crony capitalism perverts free markets and hurts small business competition, hurting us consumers.

JR

 

[Script]

Just avoiding taxes is not a magic recipe for success

Of course not. But it makes me wonder why provenly highly successful corporations still think they have to do it. Because they can?

Stock buybacks are a form of dividend that [...]

Yes, and buybacks are better than hoarding cos it makes money 'flow'. But it's not 'investing' in the classic sense of spending (and maybe wasting) money on research&development, testing new fields of application, realiszing patents etc etc -- and through all that maybe creating new jobs and, just a side effect as of now, more income for the state. In Japan, this is one the biggest economic problem right now (third pillar of Abenomics). Not sure about the US, but big companies with a lot of money here in Japan don't seem to be doing much innovation with their cash -- and I think we agree that innovation is one of the main drivers.

I had to google that.. "corporate social responsibility" I assume. Leverage for whom to do what?

Yes, it is not known by all people that something like that even exists. I say it is one of the few mechanisms (alongside maybe corporate activism) of how 'we' could 'approach' corporations, cos we indeed do not know how to treat them.

A serious question is how do we treat corporations?

That is probably the most important question of all. Wish I had an answer to it. CSR could be one aspect in this.

Paying taxes does not equal social responsibility. Wealthy billionaires like Buffett and Gates [...]

No, of course not. But avoiding taxes at all cost (cos it's 'cheaper' in the long run) doesn't really directly do much for all people equally either.

As for Buffet and Gates: good initiative, good thinking. But alongside a few others, they are really the exception. (Sometimes however I think it could also be just bait. It certainly helps them to be even more successful at what they do).

Back to politics. The US just did what Japan had long annonced: cut corporate tax (from 38% to 29.97% starting with fiscal 2018, which is in April in Japan) to give incentive to companies to 'invest' more. Well, I expect results to be mixed, to say the least. Anybody feels like spending a 'little' more if they have just saved 'a lot'. Question is: will it suffice?

 

[dmp]

buybacks are the reverse of stock issuance. If a company is strong enough to buyback shares, it is a good thing. The criticism of it is political debate, imo. Companies are not going to choose to raise wages if they don't have too - even if they are highly profitable.  Critisizing them is just hot air - the economic system needs actual reform.

In a laissez faire economy, companies are going to optimize for money, so the idea of CSR has very limited potential, realistically.

Companies historically will pollute severely, treat workers like animals,  and form anti-competitive monopolies, if not restrained by a strong and well led government.
Look at 100 years ago for solid evidence of this (i.e. the jungle by sinclair)

And 100 years ago the so called 'robber barons' also donated great wealth to social causes (Carnegie Libraries, Stanford University, etc...)
History repeats itself.

 

[Script]

Companies are not going to choose to raise wages if they don't have too - even if they are highly profitable.

Exactly where Abe's third pillar has failed since 2012.

To be fair, some Japanese companies have raised wages. But it seems to be pretty much by the same percentage that domestically produced consumer goods (mainly food) have inflated.

 

[Script]

the economic system needs actual reform

OK. Here are a few points I may have hinted at already, but I feel were all too often drowned or overlooked in partisan rants or countered by somewhat trodden replies from anti-capitalism and laissez-faire alike.

(1) Progressive corporate tax rate
- Income tax rate is progressive.
- Corporate tax rate is not.
- Any reasons why? Has this been discussed in detail? There sure are pros and cons and maybe even unforeseeaable pitfalls. What are they and, more importantly, what else would need changing to make it work?

(2) Flexible corporate tax rate reward system
- Lowering corporate tax before corporations deliver is actually a free lunch up front (us hoping that they will deliver later).
- Corporations taking risks by investing into 'workforce' and 'innovation' should be rewarded.
- But corporations avoiding risks by investing less (for whatever reason) or practising stock buybacks (because they are doing so well) should be rewarded nonetheless? Why?
- We/they could define several indicators that measure the degree of 'risk' in 'investing' and then tax accordingly. For example, investing into 'workforce' could be cheaper taxwise than investing into the takeover of a competitor. Both are risky, sure. Question here is why they do not factor in more political and societal preferences.

Naive?

 

[JohnRoberts]

OK. Here are a few points I may have hinted at already, but I feel were all too often drowned or overlooked in partisan rants or countered by somewhat trodden replies from anti-capitalism and laissez-faire alike.

(1) Progressive corporate tax rate
- Income tax rate is progressive.
- Corporate tax rate is not.
- Any reasons why? Has this been discussed in detail? There sure are pros and cons and maybe even unforeseeaable pitfalls. What are they and, more importantly, what else would need changing to make it work?

The obvious problem is that corporations would probably restructure to manipulate earnings into multiple subsidiaries large enough to gain economies of scale but small enough to get favorable tax rates. Corporations already bend over sideways to avoid taxes, moving headquarters to different countries du jour.

I do not know that progressive tax rates at that admirable especially if it gives business another metric to hire lawyers to manipulate and game. 

(2) Flexible corporate tax rate reward system
- Lowering corporate tax before corporations deliver is actually a free lunch up front (us hoping that they will deliver later).

another way to look at it is providing more capital to invest.

- Corporations taking risks by investing into 'workforce' and 'innovation' should be rewarded.

should not have to. It is in corporations self interest to educate their workers and many smart corporations already do. In a tightening labor market some businesses are hiring unskilled workers and educating them to fill a slot.

- But corporations avoiding risks by investing less (for whatever reason) or practising stock buybacks (because they are doing so well) should be rewarded nonetheless? Why?

activist investors keep those guilty of mismanaging their assets, honest buy buying them and taking over. 

- We/they could define several indicators that measure the degree of 'risk' in 'investing' and then tax accordingly. For example, investing into 'workforce' could be cheaper taxwise than investing into the takeover of a competitor. Both are risky, sure. Question here is why they do not factor in more political and societal preferences.

Naive?

Kinda...  You are operating under the premise that government and legislators know better about how corporations should manage themselves, than the corporations.

Freidrick Hayek wrote a book in the early 40's (Road to serfdom) discussing the topic broadly... of course opinions vary among economists on that subject (any subject).

-------
To repeat myself again...  Capitalism (and markets) need to be free to work their magic. Completely unfettered capitalism can lead to abuses, so we need some regulation to keep the excessive behavior in check. That said we must be vigilant that crony capitalism doesn't co-opt regulation to provide a competitive advantage against smaller companies that can not afford dealing with the added regulation. Regulation actually helps big companies squash little ones.

JR   

 

[Script]

[...] corporations would probably restructure to manipulate earnings into multiple subsidiaries large enough to gain economies of scale but small enough to get favorable tax rates

If corporations decided to spin off parts or even split -- fine. Couteracts conglomeration and increases competition.

Corporations already bend over sideways to avoid taxes, moving headquarters to different countries du jour.

Because we allow them to. So we need to touch corporate law too -- and most probably at an international level, meaning more globalization.

Subsidiary or not, it's under an umbrella and therefore 'owned' by someone or a group of owners . But basically it all continues to be one entity. Maybe we could approach a corporation almost like a 'person' and tax accordingly. Including worldwide, no matter where smaller subsidiaries decide to move and operate from. (Unless they spin off and expatriate.)

Then, just like any American citizen who lives abroad, said corporation would have to file for taxes in two countries, abroad and at home, paying an accumulated total tax that equals the higher of the two, independent of whether the money is moved across borders or not. See, no more "cheaper tax country" benefit or tax haven. I heard the EU tried to initiate something that goes in this direction, claiming avoided tax cos cross-border business model (especially wrt some US corporations). But the effort was thwarted by a US tax cut deal for repatriated money. Good for the US government (and their ideas of what to do with it), less good for the EU

I do not know that progressive tax rates at that admirable especially if it gives business another metric to hire lawyers to manipulate and game

I think those loopholes are all pretty well known by know. Could be mended by tightening. And maybe government needs more cash after all to afford same-calibre and better lawyers ...

another way to look at it is providing more capital to invest.

That's the laissez-faire capitalist argument. Problem is: those companies and corporations don't always do ! Even Warren Buffet sits on huge amounts of cash not knowing where or into what to invest. Look at Japan. Look at US and other corporations opting for massive stock buybacks. That's not 'investing' into 'innovation' and whether it 'creates' wealth is debatable. The decision for a buyback is actually ROI payout day number one under a deferred tax scheme. Only lucky those who 'own' part of it.

I'm thinking of a system in which corporations see the economic benefit of and the need to 'invest' more. Almost like a penalty for non-investing. Few regulations for small companies, more regulations for bigger companies , and big regulation bundle for corporations. Likewise with taxes: Few taxes for small, more for bigger, big time for biggest. Agreed, some of that  forcefuly iinvested money might well be 'wasted' in the thinking of a strictly profit-oriented mind. But even wasted money 'creates' more somewhere else, cos its circulating, and is more uselful then frozen, hoarded money.

However, I still would want corporations to have full freedom in deciding where and into what they want to invest, as long as they do. Some investments are more tax-cut-rewarding than others. But in sum total it wouldn't make that much of a difference for a company, cos the money is gone anyway, either as tax or as investment. Now, if a company or corporation breaks and perishes under such circumstances, so be it. Maybe they weren't that smart investors after all. But if they invest wisely, they will succeed nonetheless.

It is in corporations self interest to educate their workers and many smart corporations already do.

And should be rewarded big time for that. Even if they don't need the workers in the end. But it would help educate more people, even if that education is all for nothing in the end. But that's where we are headed for anyway with AI and automation etc "Hey, go join a company and learn something -- do that company a favour. It'll give them a tax break and you'll have some income."

You are operating under the premise that government and legislators know better about how corporations should manage themselves, than the corporations.

No I don't. I really think businesses know best what's best for their business. And I want to see them think harder by tightening the scope in which they can operate, while maintaining full freedom of decision within that scope or framework. And by thinking harder I don't mean thinking harder about how to lean sideways.

Freidrick Hayek wrote a book in the early 40's (Road to serfdom) discussing the topic broadly

Thanks, will look into it. Although I have a feeling that it might be somewhat outdated by now, cos most probably written against a different time and background.

To repeat myself again...  Capitalism (and markets) need to be free to work their magic.

Yes, but obviously quite a few of their magic tricks have started to seriously piss people off for good. Sometimes we need restrictions to reach full potential. I postulate that corporations need them too.

Completely unfettered capitalism can lead to abuses, so we need some regulation to keep the excessive behavior in check.

That's what I am talking about, plus forcing more investment into 'innovation' (make money flow and talent shine), plus taking care of all those people who, sooner or later, run peril of turning into mace-swinging cavemen if not catered for (while trying to avoid free buffets here).

That said we must be vigilant that crony capitalism doesn't co-opt regulation

So we need to clean up politics as well. 

---------------------
What a program.

Could it work? I guess not. -- But something inside me says I'd llove to see it work, cos it wouldn't want to throw out the baby with the bath, as some already  seem to be working toward (mix of "High-rise" by J.G.Ballard followed by "Lord of the Flies" by W.Golding).

 

[JohnRoberts]

If corporations decided to spin off parts or even split -- fine. Couteracts conglomeration and increases competition.
Because we allow them to. So we need to touch corporate law too -- and most probably at an international level, meaning more globalization.

the best remedy is to neutralize the benefit of silly low tax rates offered by some small countries to attract businesses, by making western tax rates more competitive. Easier said than done but better than using government force against business decisions. (IMO)

Subsidiary or not, it's under an umbrella and therefore 'owned' by someone or a group of owners . But basically it all continues to be one entity. Maybe we could approach a corporation almost like a 'person' and tax accordingly. Including worldwide, no matter where smaller subsidiaries decide to move and operate from. (Unless they spin off and expatriate.)

They are when those offshore earnings are repatriated, but when the rate is high enough, corporations just keep piles of capital offshore avoiding the taxman. (this too is an old topic).

Then, just like any American citizen who lives abroad, said corporation would have to file for taxes in two countries, abroad and at home, paying an accumulated total tax that equals the higher of the two, independent of whether the money is moved across borders or not. See, no more "cheaper tax country" benefit or tax haven. I heard the EU tried to initiate something that goes in this direction, claiming avoided tax cos cross-border business model (especially wrt some US corporations). But the effort was thwarted by a US tax cut deal for repatriated money. Good for the US government (and their ideas of what to do with it), less good for the EU
I think those loopholes are all pretty well known by know. Could be mended by tightening. And maybe government needs more cash after all to afford same-calibre and better lawyers ...

That's the laissez-faire capitalist argument. Problem is: those companies and corporations don't always do ! Even Warren Buffet sits on huge amounts of cash not knowing where or into what to invest.

I own some of Buffet's company stock because he is one of the smartest investors around (and over the decades has amassed a portfolio that gives him access to huge deals that we individuals can't get.) He is sitting on some cash now because the stock market is relatively pricey, meaning buying companies would be more expensive now than if the market was lower. I would never second guess his judgement about cash management, but he is old and won't be around forever... He has turned over a lot of the investing work to a couple younger guys who got him into apple and maybe even airlines, companies he would never touch with a ten foot pole before.  Buffet just relaxed his own rules about buying back his own stock in July. If he thinks its a good idea, maybe it is.  8)

Look at Japan. Look at US and other corporations opting for massive stock buybacks. That's not 'investing' into 'innovation' and whether it 'creates' wealth is debatable. The decision for a buyback is actually ROI payout day number one under a deferred tax scheme. Only lucky those who 'own' part of it.

It is supposed to benefit the stockholders, as I've shared before stock repurchase is a form of dividend but without the immediate tax hit. It is crazy for companies to borrow money to buy back their own stock (I think IBM may have done that), but just like dividends it is a fair use of excess capital.  In uncertain times, like with the current trade negotiations, it may not be very clear where to invest and build the next factory. Could be smart to wait a little.

I'm thinking of a system in which corporations see the economic benefit of and the need to 'invest' more. Almost like a penalty for non-investing. Few regulations for small companies, more regulations for bigger companies , and big regulation bundle for corporations. Likewise with taxes: Few taxes for small, more for bigger, big time for biggest. Agreed, some of that  forcefuly iinvested money might well be 'wasted' in the thinking of a strictly profit-oriented mind. But even wasted money 'creates' more somewhere else, cos its circulating, and is more uselful then frozen, hoarded money.

Government is the poster boy for wasting money. Making government larger is a drag on the economy, not a benefit. The government needs to do what they need to do smarter.

However, I still would want corporations to have full freedom in deciding where and into what they want to invest, as long as they do. Some investments are more tax-cut-rewarding than others. But in sum total it wouldn't make that much of a difference for a company, cos the money is gone anyway, either as tax or as investment. Now, if a company or corporation breaks and perishes under such circumstances, so be it. Maybe they weren't that smart investors after all. But if they invest wisely, they will succeed nonetheless.

companies fail all the time (its called creative destruction). Going almost a decade without a recession has in fact allowed some marginal companies to survive beyond their expiration date when a normal economic contraction would clear out the dead wood.  This is yet another unintended(?) economic distortion from the historic bailout that is only now being wound down a decade later.

And should be rewarded big time for that. Even if they don't need the workers in the end. But it would help educate more people, even if that education is all for nothing in the end. But that's where we are headed for anyway with AI and automation etc "Hey, go join a company and learn something -- do that company a favour. It'll give them a tax break and you'll have some income."
No I don't. I really think businesses know best what's best for their business. And I want to see them think harder by tightening the scope in which they can operate, while maintaining full freedom of decision within that scope or framework. And by thinking harder I don't mean thinking harder about how to lean sideways.
Thanks, will look into it. Although I have a feeling that it might be somewhat outdated by now, cos most probably written against a different time and background.

if you think Hayek is old and dated, then you won't want to read "the wealth of nations" about benefits of free trade. It was published in 1776.  :

Yes, but obviously quite a few of their magic tricks have started to seriously piss people off for good. Sometimes we need restrictions to reach full potential. I postulate that corporations need them too.
That's what I am talking about, plus forcing more investment into 'innovation' (make money flow and talent shine), plus taking care of all those people who, sooner or later, run peril of turning into mace-swinging cavemen if not catered for (while trying to avoid free buffets here).

we see government managed economies all the time... China is doing better than Venezuela, but China is smarter trying to blend in some aspects of capitalism. We'll see if they can pull off capitalism without complete freedom. 

So we need to clean up politics as well. 

drain the swamp

---------------------
What a program.

Could it work? I guess not. -- But something inside me says I'd llove to see it work, cos it wouldn't want to throw out the baby with the bath, as some already  seem to be working toward (mix of "High-rise" by J.G.Ballard followed by "Lord of the Flies" by W.Golding).

Human are frail and corruptible by power (money). This is true in business and government. Our founders were aware of this frailty and crafted a government that should be harder to corrupt, but humans being human are constantly trying.

JR

 

[desol]

Everyone crosses the same finish line regardless of their financial situation, at which time they're asked the same question.

 

[Script]

So I gather from your replies that your solution would be:

(1) clean up corruption in politics and
(2) keep corporate tax rates competitive (by lowering it even further if necessary).

But apart from that keep it all running as is now?

-----------------
W. Buffet. Very smart guy -- no doubt. I respect his entrepreneurial spirit , as you do, but I think we both would never bow to him
Anyway, recommended reading for anyone interested in the stock market. His many quotations sound simplistic at first but are really deep and often true in the sense of practical.
However, him deciding to buy back his own company stocks tells me that he sees too much risk in anythng else or that he simply has run out of ideas. He's a true dinosaur in the very best sense. And maybe he's old -- and therefore reluctant to change --  but I understand he's not willing to let his guys investing even further into Apple at this time (cos he just did).

 

[john12ax7]

Share buy backs can be perfectly fine.  The reason it's done is the same reason as someone else might buy the shares.  You have cash to invest and the current price is considered attractive.

Certainly there are exceptions,  but in general buy backs are not necessarily a negative thing.

 

[Script]

Then, just like any American citizen who lives abroad, said corporation would have to file for taxes in two countries, abroad and at home [...]

Maybe I was't clear enough here. So let me quote:

Contrary to popular belief among expats, the obligation to file U.S. taxes does not end when you take up residence in a new country. The United States is one of only two countries (the other being Eritrea) that taxes its citizens no matter whether they reside.

From: http://time.com/money/4298634/expat-expatriate-taxes-us-myths/

Many US citizens don't know this, simply because it doesn't apply to them.
And whether that earned income is repatriated or not has absolutely nothing to do with it.

In order to prevent the double taxation of income earned by U.S. citizens living abroad (i.e., tax imposed by the U.S. and the country of residence), the U.S. tax code contains provisions that can reduce or eliminate an expat’s obligation to pay U.S. taxes.

I am not familiar with all details, simply cos I am not American. So I stand to be corrected. And I'm also sure there are several exclusions (height of 'earned income' being one, which is at around $100,000 as of now, I think). But it makes we wonder:

Why does the US vigorously ask their citizens to file for and pay taxes no matter where they reside, but they don't do the same with their companies and corporations, no matter where they reside -- and no matter how many socks and underwear (read: 'subsidiaries' and seemingly independent 'sub-companies') they entertain there?

Odd, no?

 

[Matador]

drain the swamp

Seems like Robert Mueller is doing a bang-up job so far!  ;D

 

[Script]

Yes, or rather no share buybacks are not negative. It also protects against attempts of being taken over.

They can also be a chance for small investors. However, there is no 'guarantee' that the stock will go up. It often does though, but it depends on buyback volume and general business development (positive / negative).

 

[JohnRoberts]

Maybe I was't clear enough here. So let me quote:From: http://time.com/money/4298634/expat-expatriate-taxes-us-myths/

Many US citizens don't know this, simply because it doesn't apply to them.
And whether that earned income is repatriated or not has absolutely nothing to do with it.

we don't have enough bits to list everything americans don't know, but it is not uniquely American, people are born ignorant and mostly stay that way unless educated by circumstance.  Modern media only tells parts of the story that suit them.

I am not familiar with all details, simply cos I am not American. So I stand to be corrected. And I'm also sure there are several exclusions (height of 'earned income' being one, which is at around $100,000 as of now, I think). But it makes we wonder:

Why does the US vigorously ask their citizens to file for and pay taxes no matter where they reside, but they don't do the same with their companies and corporations, no matter where they reside -- and no matter how many socks and underwear (read: 'subsidiaries' and seemingly independent 'sub-companies') they entertain there?

Odd, no?

I repeat US companies do pay tax on foreign earnings when repatriated (when the subsidiary transfers the earning to the parent company.) There are numerous accounting techniques to delay or withold reporting foreign earnings. 

Some US companies have forfeit being US companies and converted to foreign domicile (just like some US citizens give up their citizenship for some other country.) Apple is a glaring example of that (ireland now IIRC). Over recent years there was a rash of conversions where a US company bought a smaller foreign company and converted to that location to base operations.

Avoiding taxes is what businesses do, because it is worth their effort to spend the time and money. At some point countries need to normalize their tax rates so forum shopping is no longer profitable.

JR

 

[madswitcher]

Interestingly, if you follow that link it comes up with a banner telling you that Meredith want to store and process your private data regarding your access to their website, and move it around the world (and supposedly use it for their own financial gain and get around local laws).  All your details are becoming data currency.  Not an uncommon thing nowadays you may say but it is rapidly expanding beyond just to email address.

Cheers

Mike