Form: Quote Commentary

Rick writes:

RE: “One big one is accelerated depreciation that lets them write off equipment faster than it actually wears out. Deductions on executive stock options help. So do tax breaks for research and development and for making products in the United States instead of overseas. Offshore tax shelters play a role, too.”

They enacted accelerated depreciation because the usa has the second highest total corporate tax burden in teh world, second only to japan. And this tax burden is equally distributed against low risk companies like the financial, legal, accounting, and other services sectors as well as the high risk companies that require significant capital investment in order to function. So what was happening, because of this extremely high corporate tax rate, was that high capital investment companies were going broke or leaving the country, depriving the country of unskilled, and low skilled, labor-class jobs. For example, the state says that your laptop must be depreciated over three to five years, however, in reality, it becomes almost valueless the moment you buy it. IN this way the state artificially increase profits and increases taxes on those profits by disallowing companies to expense things like laptops at the low end and mechanical equipment at the high end. This process effectively forces heavy industry to be uncompetitive on the world stage where other nations actively subsidize those heavy industry investments. These tax breaks effectively BUY JOBS that would depart if not. IN the case of power companies, it makes no sense to tax them if the all it does is pass through costs for energy to consumers. So we are BUYING cheaper energy for consumers by offering tax breaks to them. Executive stock options are not ‘real’. The purpose of stock options is to create an incentive for execs to increase the value of a company for shareholders. Options differ from stock in that they are not taxable until you exercise them. If you grant stock to someone they have to pay taxes on it now, despite the fact that no one has made any money yet. That would be like asking you to pay your taxes for the year, before you could take a job and earn the income. Options differ in that they give people incentives even though they are rarely paid out except in public companies, but that the employee only earns income if the stock appreciates in value – ie: they were successful. Offshore income is necessary because most corporations make their money these days outside the country. If they did not, then they might not even exist. We give shelters to people and companies because if we didn’t they would just circumvent the system or they would leave teh country entirely because the opportunities in the developing world are higher than they are domestically. The majority of depositors in swiss accounts are average european citizens who are hiding their incomes from high taxes so that they can retire safely and in some degree of comfort. Europeans rarely own homes and they tend to live in apartments, and so they do not have home equity to rely upon at retirement. If you want to tax goldman sachs you won’t get any complaints. But politicians making tax policy are far more rational than we think they are