Friday, November 10, 2017

Taxes - What the "Powers That Be" Don't Get

Corporations are legal 'entities' that are allowed to be greedy. If the kindergarten teacher sends a note home with Billy - that he won't share the crayons with the other students - then his mother wacks him upside the head when he gets home.

But when CEO William comes home, many years later, and says that he's taking the whole family out to celebrate his mother's birthday - made possible because of the profits he led his company to over the last year, and bonus received, then the mother misguidedly beams with pride at the successful lad.

Profits are the excess of what the customer paid to purchase  an item over what the company paid for the raw materials, labor, distribution, and retailing, etc. - pure and simple. Not many are against making reasonable profits. Otherwise, there would be little incentive to open a business or remain in one.

The problem is when CEO's and Corporations get so greedy that they forget why they are in business. Some think it is to maximize shareholder wealth. Some think it's all about their company reputation. Some think it's all about their bonus. There are precious few CEO 's that will work without a bonus. What? Only get paid for the job I do? Nothing extra? It goes on & on. The result is that may CEO's can make 50x, 100x, 200x, 300x or more what their first line workers make - like the worker doesn't have to get out of bed and provide breakfast for the kids, too. Sickening.

Further, because of the high-priced Corporate lawyers, many Corporations don't have to currently pay Federal income tax, at all.

Here is how USAToday reports it, "There are 27 companies in the Standard & Poor's 500, including telecom firm Level 3 Communications (LVLT), airline United Continental (UAL) and automaker General Motors (GM), that reported paying no income tax expense in 2015 despite reporting pre-tax profits, according to a USA TODAY analysis of data from S&P Global Market Intelligence."

Clearly this situation seems unfair to most taxpaying Americans. They pay their taxes, and the best lawyers can prevent companies from paying any taxes.

First and foremost, Americans want to see the greedy Corporations and the wealthiest of the lot not to be able to escape paying their income taxes. The taxes are needed to fund the infrastructure that allows the companies to be successful in the first place. They use it. They should help pay for it. This, I think, is what most of us mean by a "fair" tax. It's one applied to all but the poorest, according to our means to pay. So, this is the first thing that must be fixed.

Second, unfortunately in the U.S., determination of what is "excess" compensation falls - you guessed it - to the IRS! The Internal Revenue Service monitors to see that "in comparison" the reported wages make sense. Huh? It results only in a never-ending upward spiral of CEO pay. This clearly results in the increasing income disparity we see among the 1%. I contend that the tax system can be used to make bonuses less attractive than straight-forward compensation. For example, bonuses could be taxed at a much higher rate than wages - this would make them less attractive, until they are taxed out of existence. It is precisely items like this that most people - if they have an honest discussion about it - want to see fixed via the tax code.

Third is simplicity. Simplify Corporate taxation so that all companies use exactly the same accounting rules, and arrive at the same result. Lawyers not needed = companies become more profitable and competitive. Then, apply a rate that helps make the companies globally competitive. But, eliminate many of the unfair practices compared to the worker. One such glaring example comes to mind. Why are companies allowed to "buy-back" their own shares? Doesn't this amount to trading on inside information? Only the company gets to time it's buy-back with the knowledge it has which no one else has. And why are such costs (as all business costs are) tax deductible? No, it seems that if a company wants to buy-back it's shares (supposedly for some strategic reason), it should actually pay a penalty for doing so. The reason is quite simple - if the company has too many shares outstanding, then it must have somewhere made a mistake. That is the very definition of "too many". And mistakes in business should be dis-incentivized, not rewarded.

Along the lines of income tax simplicity, most individuals recognize the sheer nonsense that is going on. Why are your social security benefits taxed, at all? If it's a benefit - just reduce the benefit by the amount that would otherwise be taxed and save all of that needless calculation and paperwork! This is only the tip of the tom-foolery iceberg.

Why do you pay in withholding taxes to the system, only to apply for a refund at the end of the year? This is crazy. Let's take it away, and try to get it back. Huh? This is what insane people do when they are not banging their head against the wall. Please stop. Isn't there a fair way to have an employee just state what their situation is in the year, and have the taxes paid by deduction and be over and done with it? No financial calculations - not even the post-card. Just a status update. I'm married with four children, and I own a home, with a mortgage of X, and pay property taxes of Y. The taxing authority just then calculates the appropriate deductions during the year. No audits - because it is THEIR fun with the numbers, not yours.

I could go on & on. There are many, many more examples of idiocies in the system. And there are just as many ways to make a taxing system more simple and fair. All one has to do is think a little outside of the box. Unfortunately, all of our government leaders seem to be stuck glued inside that box! At least for now.

Today was an inside day, with the market down slightly for the week.
Have a good start to your weekend!
TraderJoe






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