Sunday, April 12, 2009

How to Fix the Economy

Economics, as I like to point out, is simple.

It's very, very VERY simple.

I don't like people who take simple things and try to make them seem complicated so as to fool others into thinking they're super smart or something. For example using words like "paradigm." Do you remember that around circa 2001, 2002 or so? "Paradigm" was a word some intellectual elitist had to look up and worked it into his daily vocabulary so as to keep other people from finding out he was in fact a complete freaking moron. Other complete freaking morons, notably MBA's picked up on the trend and started putting it into their vocabulary. This way people in marketing can make it sound like they're doing something productive.

Oh, sure, I like to use new words, but at least I pick them because of their coolness. Like the word "veracity." Now that's a cool word. Or "expeditious." But "paradigm?"

Get your ass back to academia.

In any case, as I said I like to make economics simple and so let me tell you the one thing that would do the most to help turn this economy around. It's so simple and so effective that it practically guarantees the government will not do it;

Eliminate corporate taxes.

Now, set aside if you will, the natural knee jerk leftist reaction and for once instead try to listen to me.

If you eliminated corporate taxes, several things would happen;

1. Corporations not just domestically, but foreign corporations as well would immediately flood the US to not only set up plants and businesses, but move their corporate headquarters here (bringing with them high paying white collar jobs).

2. These new found jobs would have an immediate and decreasing effect on unemployment, which as it approaches double digits, I think by now has the attention of even the most ardent sports fans who cannot retract their heads from their asses long enough to quit paying attention to what the score is for the hockey game and may now in fact be paying attention to the economy.

3. Corporations would immediately repatriate hundreds of billions in profits they are leaving overseas back into the US economy. You want to talk about stimulus that doesn't require indebting future generations into slavery or destroying the currency, try $300 billion in real money within the next 3 months.

4. "What was that? Corporate taxes that were once 40% are now 0%?" Well boys and girls, what kind of effect do you think that would have on the value of stocks? Let me see, if we get to keep 40% more of our money then stocks would be...um.......wait...40% more valuable!!!!! 1.4*8000, would result in a DJIA of 11,200. Would that help your 401k maybe?

Of course, as I said before, eliminating corporate taxes is such a simple and grandiose idea, that it practically guarantees the government will never do it. Besides which, the government is elected by the people. And the people are so incomprehensibly stupid and brainwashed that they love to loathe "evil corporate America" but in the same breath bitch and moan about the halving of their 401k plans.

In the meantime I sit here and enjoy the show smoking my cigar, sipping my martini.

17 comments:

Jaime Roberto said...

2 of my other favorite business school buzzwords are synergy and leverage. "Let's leverage our synergies to create a new paradigm."

Something that never fails to blow the minds of liberals is to point out that Sweden actually has pretty low corporate tax rates. It's their personal tax rates that are a killer. I suspect our personal rates would have to go up too, though we pay corporate taxes indirectly, so "net net" (to use another buzzword), it probably evens out.

Captain Capitalism said...

Hi Jaime,

Actually I remember a company here that called itself "Cynergy."

Huh, get it?

You know like, but instead of using an "s" they used a "c?"

Isn't that funny? The pun I mean?

How witty and clever those people must be.

Unknown said...

With extra businesses setting up shop here, more people employed, and gains on the stocks tax revenue might actually go up right?

Captain Capitalism said...

Correct, the goal would be to grow the tax base by attracting economic production, not deterring it by punishing it with progressively higher taxes.

Look at how well North Korea taxed itself into prosperity, just like Cuba and Venezuela.

DY3 said...

I wish that had a feasible chance of happening. Maybe in another 3+ years when people figure out that corporations aren't the bad guys in the cool game "Let's pin the blame on the scapegoat."

I agree that, in time, this would generate more tax revenue and, more importantly, vast economic growth. I'm curious as to how many year(s) you would estimate it would take to make up the taxes lost by the initial cut? (As people are flowing back into the country, and creating wealth)

Joel said...

So how about bankruptcy .. is that counted?

Scott said...

Capt'n:

FairTax.

It not only eliminates corporate taxes (Corporations do not pay taxes, they collect them from their customers, and pass them along to the government), but the income tax altogether.

Anonymous said...

Capt'n you ever read how the germans, "hit the the reset button" after WWII?

Fascinating... especially with the English and american economists & military authorities rather vociferously aginst it.

Anonymous said...

Oh, yeah, Capt'n you aren't the only one to think of that.

After all I believe that serous study after serious study has shown that Corporations do not really "pay" taxes - they pass them right through to cost of goods - the consumer, or reduce taxable profits - screwing the stock holders/owners.

Anonymous said...

Something like the FairTax would only be good if that tax rate were capped at whatever rate would require the federal government to slash its present budget by half.

Scott said...

Something like the FairTax would only be good if that tax rate were capped at whatever rate would require the federal government to slash its present budget by half.

Or, if the federal government would just stick with it's Constitutionally authorized activities; you know, common defense, etc...

CBMTTek said...

While I fully agree in principle, unfortunately, in practice that will probably never happen.

Even if the US goes to 0% corporate taxes, the likelihood of factories opening in the US is pretty slim. The factory may increase an areas carbon footprint. Or is may increase traffic congestion. Or it may harm the water. Or it may be closer then 50 miles to a school. Or some other NIMBY reason.

I have long said the only way to build an economy is to manufacture. Take raw materials, add value through craftsmanship, and sell the products. That, and only that, takes money from other areas, and moves it into your economy.

It is how the US became the economic giant it was during the industrial revolution. It is how we built our economy following WW II. It is how Japan built their economy through the 70s and 80s, and it is exactly what China is doing right now.

Do corporate taxes have to go to 0%, no. But, cut them in half, and watch the benefits start rolling in.

Hot Sam said...

Using words like 'paradigm' when they are the best words for the job of communication is ok. Using them to try to impress people is annoying.

I once heard of Economics described as 'common sense made difficult.' To a certain degree that's true, but I've found that 'common sense' is often neither 'common' nor 'sense.' Often it's just folk 'wisdom', urban legend, or myth.

Economics is filled with paradoxes (dare I use that word?). For example, the famous Diamond-Water Paradox which took hundreds of years to solve. Then there's the Paradox of Thrift where some people believe that people saving money in our current situation will only make it worse (I don't necessarilly agree).

Then there's the paradox that lowering tax rates can sometimes increase tax revenues.

The business buzzword I hate the most is 'Going forward.' People use it like punctuation. Hearing it puts me into a homocidal frenzy.

Ever read a Harvard Business Review? Thirty painful pages of print which say absolutley nothing.

Captain Capitalism said...

Or my favorite word;

"PROGRESSIVE"

Whew, talk about completely abusing a word.

Hot Sam said...

Oh, hell yeah. 'Progressive' is the modern euphemism for 'socialist.' It also hijacks the legacy of Teddy Roosevelt whose trust busting for the sake of efficient competition has been warped into general hatred of large companies and rich people.

The guy who started Progressive Insurance, BTW, is a flaming limousine liberal with all due respect to your infatuation for Flo.

Here is another interesting story in which conventional wisdom gets it wrong with respect to economics:

http://powinca.blogspot.com/2009/04/five-fingered-discount.html

I could be wrong where practice departs from theory, but I think I analyzed it correctly.

beancounter said...

My first post on your blog (good stuff), though I've been lurking off & on for a few weeks.

I agree 100% with cutting corporate taxes. Our (relative) political stability helps us keep a large number of multinationals here. But they would flood here with a 0% corporate tax rate. Tons of jobs.

Corporate income taxes currently account for about 7.5% of government revenue. That would more than be made up in the expanded tax base.

One other point you didn't make - it would be tremendous for small business. Most small businesses are pass-through entities (sole-proprietorships, S-Corps, etc.) You're taxed on the money you keep in your business to expand it. The section 179 deduction helps some, but not in all cases.

For example - last week I did the taxes of a gal who made about 270K in her S-Corp. She's taxed on 270K, but she had to expand her working capital by about 60-70K. She really only earned about 200-210K. She's created at least 3 six-figure jobs with that extra working capital, but she's being penalized.

With no corporate income tax you'd see virtually all small business switch to C-Corp and you would see tremendous economic growth in that sector as well. As an added benefit you could simplify tax law by getting rid of a few entity types.

I was taking a break and had to comment. Now I have to get back to trying to starve the beast of my clients' $...

Ryan Fuller said...

Would you lower taxes on private businesses as well? If it's just the corporate tax rate that gets cut, you create incentives to incorporate what would otherwise be a private company.

If the government's spending money, it's got to come from somewhere. I'd focus more on reducing spending.

Jaime, I was throwing around buzzwords to mock my employer the other day, and "Dynamically leveraging our synergies in today's marketplace to create a new business paradigm for the future going forward" was the exact phrase used. It's a good one. :)