The Taxman

[Mik]

Capital and operational expenditure is no guarantee of future profits. Buybacks are simply financial management of corporate assets.

[xenon]

@Horace said in The Taxman:

The demonization of buybacks is a neat political tool in that it exploits the "greedy corporation" perception to convince people that corporate tax reductions are bad, but in a healthy market, and for mature companies, it should be expected to happen sometimes. It only means the company values its own stock more than the market does. Why is that a bad thing? In theory, you can consider it as the company paying back the loan it took in its public offerings, which allows that money to be re-invested by the market in other places. It makes sense for mature, profitable companies to make more than they can reasonably invest in their own organic growth.

I have no issues with buybacks on an individual corporate level. None. There are pros and cons.

I don't even like corporate tax as a tax vehicle.

But - when you step back and see a pattern at the aggregate level in the economy of high-buybacks and low investment, then you have a bit of a problem.

And it's a bit obvious even without hindsight. Cash has been very very cheap. It was not the right time to take on more debt to fuel tax cuts. It was time to pay down the debt.

[Horace]

I'm still struggling to follow your point. Would this pattern you're noticing be equally distressing if the corporations paid dividends rather than did buybacks, with that same money?

[xenon]

@Mik said in The Taxman:

Capital and operational expenditure is no guarantee of future profits. Buybacks are simply financial management of corporate assets.

They're not - but that's the primary mechanism through which tax cuts create growth.

[xenon]

@Horace said in The Taxman:

I'm still struggling to follow your point. Would this pattern you're noticing be equally distressing if the corporations paid dividends rather than did buybacks, with that same money?

Yes. One corporation giving back money to investors or buying back its stock can make sense for idiosyncratic reasons specific to that organization.

When you have businesses in aggregate at the macro-level giving that money back (or buying their stock) -> that speaks to a different problem.

[Horace]

any corporate tax cut will necessarily result in an aggregate increase in returns to investors. That's the point of a corporation's profits. And a tax cut will increase those profits. You can't say that an inevitability is a symptom of a problem.

[xenon]

@Horace said in The Taxman:

any corporate tax cut will necessarily result in an aggregate increase in returns to investors. That's the point of a corporation's profits. And a tax cut will increase those profits. You can't say that an inevitability is a symptom of a problem.

You're not focusing on the primary thing I'm saying. Corporations making profits, tax cuts increasing that - that's fine and dandy. I have no issue with "greedy" corporations and record profits.

Investments = factories, jobs and benefits for workers though and future jobs (read: regular Joe's). That's the mechanism through which it directly benefits society.

There's a secondary benefit of people with profits having more money to invest in other financial vehicles and companies.

But again - if at the aggregate level investment is going down, you have a problem.

[Rainman]

@George-K said in The Taxman:

For example, taxes levied on producers can be passed on to consumers through higher prices."

Yes, as can the 25% tariff. At some point, someone in the U.S. will deem it profitable to manufacture domestically. Hopefully, that will be soon.

Now, back to the heady corporate tax topic.

[Horace]

@xenon said in The Taxman:

@Horace said in The Taxman:

any corporate tax cut will necessarily result in an aggregate increase in returns to investors. That's the point of a corporation's profits. And a tax cut will increase those profits. You can't say that an inevitability is a symptom of a problem.

You're not focusing on the primary thing I'm saying. Corporations making profits, tax cuts increasing that - that's fine and dandy. I have no issue with "greedy" corporations and record profits.

Investments = factories, jobs and benefits for workers though and future jobs (read: regular Joe's). That's the mechanism through which it directly benefits society.

There's a secondary benefit of people with profits having more money to invest in other financial vehicles and companies.

But again - if at the aggregate level investment is going down, you have a problem.

I don't think the metric you're using - "aggregate buybacks increasing" - is reasonably indicative of any problem, since it will inevitably be the case with lower corporate taxes.

Society might want a mature, highly profitable company to pay the profits back to the market, so they could be invested elsewhere. Nowhere is it written that a corporation doing what it does so well that it makes too much money to invest it all in organic growth, is a bad thing.

I think the anti-buyback crowd should take it case by case. It would help to convince me, at least. Show me a corporation that is a prime example of the problem we're discussing.

[xenon]

@Horace said in The Taxman:

@xenon said in The Taxman:

@Horace said in The Taxman:

any corporate tax cut will necessarily result in an aggregate increase in returns to investors. That's the point of a corporation's profits. And a tax cut will increase those profits. You can't say that an inevitability is a symptom of a problem.

You're not focusing on the primary thing I'm saying. Corporations making profits, tax cuts increasing that - that's fine and dandy. I have no issue with "greedy" corporations and record profits.

Investments = factories, jobs and benefits for workers though and future jobs (read: regular Joe's). That's the mechanism through which it directly benefits society.

There's a secondary benefit of people with profits having more money to invest in other financial vehicles and companies.

But again - if at the aggregate level investment is going down, you have a problem.

I don't think the metric you're using - "aggregate buybacks increasing" - is reasonably indicative of any problem, since it will inevitably be the case with lower corporate taxes.

Society might want a mature, highly profitable company to pay the profits back to the market, so they could be invested elsewhere. Nowhere is it written that a corporation doing what it does so well that it makes too much money to invest it all in organic growth, is a bad thing.

I think the anti-buyback crowd should take it case by case. It would help to convince me, at least. Show me a corporation that is a prime example of the problem we're discussing.

I know I posted an "anti-buyback" article. But I'm not anti-buy back. I'm not anti-anything that corporations do. They respond to incentives. That's just an example of a thing you can do instead of increasing investment in your business.

My primary point here is that the tax cuts did not increase business investment. So what did we really "get" as a national for the increased national debt we took on?

[xenon]

I'm purposely also staying away from why I think this happens (this is not the traditionally observed relationship between tax cuts and investment).

There's lots of potential theories people have floated, e.g.: more winner-take-all type big businesses (Amazon, Google, Apple, etc.), regulatory capture, just the wrong time in the biz cycle, etc.

But that's a whole other ball of wax - and multiple issues end up getting conflated.

Similarly I don't really care what corporations do with the tax money outside of investment - that's not my point.

[Horace]

@xenon said in The Taxman:

My primary point here is that the tax cuts did not increase business investment. So what did we really "get" as a national for the increased national debt we took on?

I'm not sure what number you're using to establish that. To misuse one of jon's favorite phrases, what's your null hypothesis? How much should the "correct" sort of investment have increased, absent this problem you're pointing out?

I've explained how a buyback or a dividend is an appropriate and pro-social part of a market, for every reason a market itself is pro-social. It's just a company doing a normal thing with its profits. I struggle to identify a fundamental difference macro-economically between a mature company paying dividends and a less mature company investing in organic growth.

[xenon]

@Horace said in The Taxman:

@xenon said in The Taxman:

My primary point here is that the tax cuts did not increase business investment. So what did we really "get" as a national for the increased national debt we took on?

I'm not sure what number you're using to establish that. To misuse one of jon's favorite phrases, what's your null hypothesis? How much should the "correct" sort of investment have increased, absent this problem you're pointing out?

I've explained how a buyback or a dividend is an appropriate and pro-social part of a market, for every reason a market itself is pro-social. It's just a company doing a normal thing with its profits. I struggle to identify a fundamental difference macro-economically between a mature company paying dividends and a less mature company investing in organic growth.

Aggregate biz investment is tracked, just like GDP, unemployment and other metrics.

If your question is "how do you know that biz investment wasn't going to go down even further in the absence of the tax cuts" - well, no one has that counterfactual and I don't know.

To your second point - if it's just mature companies managing for cashflow vs. less mature ones investing, that's normal. I'm saying that if - on average across all companies - investment is going down with the advent of a tax cut, that speaks to a problem.

[Horace]

I think your thesis is hand-wavy. It would help me understand if you could provide an example of a company that is a good case in point of the issues you're concerned with. And no fair claiming this is aggregate stuff rather than individual company stuff. The aggregate implies the existence of plenty of individual companies that must be doing something problematic.

[Axtremus]

@Horace said in The Taxman:

I think your thesis is hand-wavy. It would help me understand if you could provide an example of a company that is a good case in point of the issues you're concerned with. And no fair claiming this is aggregate stuff rather than individual company stuff. The aggregate implies the existence of plenty of individual companies that must be doing something problematic.

Oh sure, crying foul because you don't like the "aggregate stuff."
Taxation is a matter of public policy. It's bad public policy if it leads to negative outcomes in the aggregate.

[Horace]

No, I am pointing out that an average must contain components closer to it than not. It's a simple math thing.

[taiwan_girl]

@Jolly said in The Taxman:

@taiwan_girl said in The Taxman:

@Horace With the US stock market being going to (almost) a record, are "they" predicting a President Trump re-election or a Vice President Biden win?

It doesn't matter. Presidents have no effect on the stock market.

Be careful Jolly. Horace may have a different conclusion. LOL

[Rainman]

Why would I invest in the stock market, when I get 30-40% ROI as a small business owner by investing back in my own business?

If nothing else, it's a heck of a lot easier than trying to understand the depth of discourse in this thread.

[xenon]

@Horace said in The Taxman:

I think your thesis is hand-wavy. It would help me understand if you could provide an example of a company that is a good case in point of the issues you're concerned with. And no fair claiming this is aggregate stuff rather than individual company stuff. The aggregate implies the existence of plenty of individual companies that must be doing something problematic.

https://www.google.com/amp/s/www.wsj.com/amp/articles/did-the-u-s-tax-overhaul-do-what-it-promised-11578114001

I’m sure I can find 100’s of anecdotes in either direction.

Here’s one from Whirlpool saying it didn’t affect their hiring or capex plans much:

“On the whole it was positive, in that it helped the broader consumer, but on the effective tax rate for us it was a lot less than you’d think,” Whirlpool Corp. Chief Executive Marc Bitzer said in an interview last month. He said the global appliance maker didn’t see a meaningful change in its taxes or boost its U.S. hiring or capital investment as a result of the law..

My point was more about graphs like this:

![alt text](@Horace said in The Taxman:

I think your thesis is hand-wavy. It would help me understand if you could provide an example of a company that is a good case in point of the issues you're concerned with. And no fair claiming this is aggregate stuff rather than individual company stuff. The aggregate implies the existence of plenty of individual companies that must be doing something problematic.

https://www.google.com/amp/s/www.wsj.com/amp/articles/did-the-u-s-tax-overhaul-do-what-it-promised-11578114001

I’m sure I can find 100’s of anecdotes in either direction.

Here’s one from Whirlpool saying it didn’t affect their hiring or capex plans much:

“On the whole it was positive, in that it helped the broader consumer, but on the effective tax rate for us it was a lot less than you’d think,” Whirlpool Corp. Chief Executive Marc Bitzer said in an interview last month. He said the global appliance maker didn’t see a meaningful change in its taxes or boost its U.S. hiring or capital investment as a result of the law..

My point was more about graphs like this:

Or this:

Or this:

[Horace]

@xenon said in The Taxman:

“On the whole it was positive, in that it helped the broader consumer, but on the effective tax rate for us it was a lot less than you’d think,” Whirlpool Corp. Chief Executive Marc Bitzer said in an interview last month. He said the global appliance maker didn’t see a meaningful change in its taxes or boost its U.S. hiring or capital investment as a result of the law..

Well, there's the problem right there. The tax cut wasn't large enough to be meaningful. We need to cut taxes more. Problem solved.