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Old 09-05-2011, 09:08 AM   #41
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I think we've mis-diagnosed the problem in this thread, and therefore are arguing over the wrong cure.
In my view, the acute illness is too much debt, fueled by easy credit and overconsumption, and other imbalances allowed/enabled to fester by short-sided government and private action. There is too much slack, particularly in the housing sector, not only shrinking the employment pool, but all but eliminating the extra consumer "oomph" from using home equity as amphetimine...


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The general line of thinking seems to be that we can simply cut corporate taxes and then businesses will use that extra money to create jobs. The problem is, businesses are already sitting on record amounts of cash. And yet they aren't investing and they aren't creating many jobs.
A "dividend holiday" of one or two years would allow shareholders to decide if they want some of that money in their pockets. If they decide the company can use it productively, then no special dividend. Otherewise, a few billion/trillion returned to the economy...


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Clearly corporate cash and profitability are not constraints to recovery.
I believe this is an accurate statement, at least of short-term reality...

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What's not clear is why policy designed to loosen a non-constraint will have any beneficial impact.
However, I can envision a longer-term benefit, if, say, lower rates motivate companies to locate/relocate facilities in the USA.

This is a paradox for me. I'm all for smaller government, and a more balanced budget, in the long run. But the answer must be in the center somewhere. I've heard many on the right call for repeal of Sarbanes-Oxley and Dodd-Frank, for example, to reduce "uncertainty", and stimulate the economy. Along with these legislatives actions, one often hears the EPA, USDA, etc. mentioned as well. Not streamline or improve, mind you, but eliminate. I don't think we need to go that far. I'm not sure how we compete with countries with no pollution controls, child labor laws, and such; do we revert back to that? Is that really where we want to go?

Of course, sifting through all that legislation is tough, and expensive, and fraught with special interest conflicts from all sides, and thus does not make for good sloganeering...

Given the weak economy, and the amount of deleveraging still needed, some classic stimulative actions, like the payroll tax cut, or a sales tax holiday, or government infrastructure spending, are likely needed to help speed the deleveraging process, as well as stimulate demand. This would likely make government deficits at all levels worse in the short- to medium-term, a not-so-popular idea at this time...
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Old 09-05-2011, 09:20 AM   #42
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Taxes are not passed on to consumers. Some taxes (not income) do represent costs, and like other input costs, affect profit.
That's absurd, where the various taxes and other costs appear on the income statement is irrelevant, they all flow from the top line revenue - from customers. You've pointed out several "real theory" distinctions in this thread that while true, they're academic in the end so I guess we'll have to agree to disagree, no problem.
You are going to agree to disagree over simple algebra? MichealB seems to be saying that if X= A+B-T-C, that is isn't true that X= A-T+B-C. As you say, taxes are another expense, they subtract from profits just like any other expense. They can't 'appear' anywhere except as a subtraction.

If a business can't make a decent profit, they attempt to raise prices, and/or cut expenses - if that fails, they go out of business. The prices they need to charge will include taxes as an expense.

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While, I generally agree with you ERD, and am not wanting to tax corps excessively and potentially hurt economy, I'm not a 100% sure the corporations would pass down the reduced cost of business to consumers if their taxes were reduced. If I remember correctly last month, the airlines caused an uproar when the federal tax on tickets temporally expired, the airlines raised the price exactly to match the taxed ticket cost and pocketed the money themselves.
Yes, some of them didn't pass this on, but you need to take a closer look to understand why. It was essentially a 'stealth' price increase. I just googled and airline profits are sharply down for 2011, so they were looking to raise prices anyhow. This was just the means they used to do it - it was 'convenient' as it wasn't an immediate out-of-pocket increase for the consumer. So it appeared a little less painful. This 'stealth' price increase might allow them to avoid increasing prices a bit longer.

Again, it's just another expense. In a competitive market, all else being equal, taxes will affect prices just like the cost of materials. We see gas prices go up and down based on these costs, they don't just go up. A tax rise/drop would do the same thing.

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Old 09-05-2011, 09:26 AM   #43
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That's absurd, where the various taxes and other costs appear on the income statement is irrelevant, they all flow from the top line revenue - from customers. You've pointed out several "real theory" distinctions in this thread that while true, they're academic in the end so I guess we'll have to agree to disagree, no problem.
Agree to disagree on many things, but not on absurd, irrelevant and academic Taxes, finance and pricing are complex issues and the theories that describe their behavior do not always coincide with common beliefs. You can choose not to believe them but they are no less relevant.

Taxes affect the behavior of consumers and businesses. The greater problem in the US is not tax rates, which are not high when compared with our history or other developed countries, but tax complexity, which is off the charts when compared to each.
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Old 09-05-2011, 09:36 AM   #44
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One final comment. The cost of production is the sum of individual costs, which would include many non-income based taxes (like property tax mentioned earlier). The price of a product is determined by market competition. The decision to produce is a function of the difference between the two factors. In other words, non-income taxes affect the decision to produce.

If tax is assessed on profits (investor income), then tax also affects the decision to invest.

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Old 09-05-2011, 09:53 AM   #45
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Taxes are not passed on to consumers. Some taxes (not income) do represent costs, and like other input costs, affect profit margins.
No?

If the cost of labor doubles, you'd better believe what the businesses sells is rising in price. If the cost of energy or other input to the finished product doubles in price, you'd better believe the cost of the finished product is going up. Why are taxes different?

In this corporate and economic environment, I'm not convinced corporations would slash prices if their corporate income taxes were eliminated. (It's like the relationship between crude oil and gasoline; when crude prices spike gas prices immediately follow; when crude crashes it takes a long time and only when some business in a competitice environment is brave enough to start a price war.) At this point I don't trust large corporations to cut prices or hire people or doing anything with their unprecedented hoards of cash unless they clearly see demand *requiring* them to spend some of it on hiring and expansion.
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Old 09-05-2011, 11:35 AM   #46
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No?

If the cost of labor doubles, you'd better believe what the businesses sells is rising in price. If the cost of energy or other input to the finished product doubles in price, you'd better believe the cost of the finished product is going up. Why are taxes different?

In this corporate and economic environment, I'm not convinced corporations would slash prices if their corporate income taxes were eliminated. (It's like the relationship between crude oil and gasoline; when crude prices spike gas prices immediately follow; when crude crashes it takes a long time and only when some business in a competitice environment is brave enough to start a price war.) At this point I don't trust large corporations to cut prices or hire people or doing anything with their unprecedented hoards of cash unless they clearly see demand *requiring* them to spend some of it on hiring and expansion.
Ziggy, I am reaffirming that taxes are costs. Any cost increase will compel a business to want to increase price, but the increase itself depends on competition and market conditions. A business with rising costs but excessive competition gets stuck, keeps the price low, and loses money – but still maximizes revenue in the hope of offsetting somehow. Such is the tale in the US airline industry.

Lower taxes do not lead to lower prices, they lead to higher margins for investors. Lower prices result from greater competition or weakening demand.

The way to lower prices is to encourage competition by lowering input costs evenly for all competitors in an industry. A tax that is applied uniformly across an entire industry, if removed, might encourage competition and drive the price lower in that industry. Taxes are applied very unevenly across US business, however, so such an ‘across the board” effect is unlikely.

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Old 09-05-2011, 03:05 PM   #47
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Lower taxes do not lead to lower prices, they lead to higher margins for investors. Lower prices result from greater competition or weakening demand.

The way to lower prices is to encourage competition by lowering input costs evenly for all competitors in an industry. A tax that is applied uniformly across an entire industry, if removed, might encourage competition and drive the price lower in that industry. Taxes are applied very unevenly across US business, however, so such an ‘across the board” effect is unlikely.
All in the same post? So which is it? Surely you're not suggesting that since taxes are applied unevenly, the correlation between costs (taxes or other) and prices doesn't apply at all. They may be uneven in some respects, but not so much long term, and they certainly aren't randomly applied - the only case I can imagine where prices wouldn't correlate with costs including taxes (rate, actual, whatever). Mark Twain is calling me (again)...

To Ziggy's other point, no question companies are quick to increase prices when faced with cost increases, and they drag their feet decreasing prices when costs fall. How fast it happens is usually a function of how much excess capacity there is, or how much supply exceeds demand. Where there is lots of excess capacity, price decreases happen pretty quickly. I don't want to introduce yet another aspect, but contractual pricing or indexed pricing, which many large companies offer - make price increases/decreases completely automatic and on a schedule (ours used to be quarterly, most are monthly now). Though consumers may not always see prices fall with costs in a timely manner, a lot of business to business transactions have price increases/price decreases indexed to cost and they change quarterly if not monthly. There is no foot dragging for a lot of transactions.
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Old 09-05-2011, 03:31 PM   #48
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We have several points circulating here, but wherever your quote comes from (link or source?), it talks a lot about how capital deployment decisions are made. And you may recall that I took the position that individuals or workers ultimately pay all Corp taxes. It all starts with revenues for goods and/or services, beginning with individuals.
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Old 09-05-2011, 04:23 PM   #49
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Taxes are applied very unevenly across US business, however, so such an ‘across the board” effect is unlikely.
Yeah, don't get me started on small businesses being forced to compete with a large corporation which is getting a massive tax break to come into town and compete with them.
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