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Elizabeth Warren's proposal to [Tax] Corporate Profits
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It would also make every corporation that could possibly do so relocate as soon as possible. That is such a huge disadvantage to competitiveness that cannot be overstated.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
Essentially it’s the same cost if they expatriate labor or leave it here. If it wasn’t cost effective to do it before this doesn’t make it more or less so, the business calculus is the same.
My first reaction is that this disadvantages companies with low markups or high expenses, like retail and manufacturing; it disadvantages companies with high labor costs like anybody in the service industry; but it advantages companies with a lot of passive income like royalties or investments - finance, patent trolls, the record industry.
It feels like the exact opposite from the industries we want to incentivize.
Do you have something in mind to counteract that?
the "no true scotch man" fallacy.
This seriously ignores economic reality. Like, one you have made your domestic businesses incredibly uncompetitive on the global market son your exports tank and you imports soar. Or your imports also collapse if this also functions as a tariff. Then all the domestic businesses collapse. And what's left will be strongly incentivized against expansion.
So the corporations pay little or no taxes. The shareholders pay greatly reduced taxes. And I pay normal rates for taxes. And yet...
The corporations have most of the money. The shareholders have some of the money. And I have little or none of the money.
Hrm...seems backwards.
We are currently seasoning a turd sandwich. I’ve chosen hidden valley ranch.
1 big rig probably shreds up pavement worse than several dozen cars are capable of.
Unless the corporations are sitting on piles of physical money, they're keeping that cash in a bank or in some kind of financial instrument like government bonds. So that money ends up in the financial system and allows someone else to go into debt, including financing the debts of our governments.
What is really the problem is that governments should be using the lowest interest rate debt in history to finance investment in numerous economic sectors like infrastructure.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
Is that the problem?
The problem isn't that, even with absurdly low tax rates, we're funneling tens of billions of dollars right to industry and they aren't paying for shit?
In our fiat currency economy, the real limitation on government spending isn't tax revenue, but inflation. As long as interest rates are low and government debt is cheaply financed, inflation isn't a problem for government deficit spending. The model to look at is Japan, which is at a 200% GDP debt ratio and under 2% inflation still.
So it doesn't really matter that we can't get the corporate money as tax revenue. Our government can just borrow that money, pay super low interest on it, and finance all the shit we need for our society.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
It doesn't though. It sits in an account. And because of 1929 and 2008, we require banks to keep a certain amount of their deposits as funds so that bank runs don't happen.
And no bank is building roads, bridges, schools, or other necessary infrastructure. That's all done by the government. And what is most of the money in banks used for? Short term loans to mega-corporations, loans to investors so they can gamble, loans to shareholders so they can gamble, money laundering, etc? Little or no taxes are paid on any of those items, so that's not funding infrastructure either.
The more I learn about big business, the more I learn how willing they are to fuck over the little guys just to make a buck. Government is supposed to be the check on this behavior, except that our current government has abdicated this responsibility. The biggest thing Elizabeth Warren is telling us is that she wants to reinstate the checks that are necessary to make our system work, before greed at the top manages to topple the whole affair.
Government deficit spending is funded by sales of bonds. I think that is a basic economic fact you're missing?
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
In the event of an economic downturn government debt becomes more attractive, not less, because everything else is losing value and bankrupting, while our government will always honor its debts. (That is assuming that the country is still politically stable.)
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
How is that related?
Well where does the money come from to buy those bonds? It comes from savings, including corporate savings.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
Well yeah, that is what I mean by "politically stable" - that we won't actually do the shit that will completely destabilize the country. But if that happens we have much bigger problems than corporate savings gluts, because the foundation of the currency will be destroyed and we'd be back to barter economics. And those corporate savings won't matter cause we ruined the currency!
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
So instead of taxing corporations to get money to build and maintain necessary infrastructure, we should instead expect the government to take out loans with corporations?
Does it really matter as long as the government gets the money do to what it needs to do? As long as the financing is sustainable, a bridge is a bridge.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
Do I want corporations owing the government any more than now?
Fuck.
No.
This is an absurd suggestion. Yes it matters.
A corporation owning billions of dollars of US treasuries doesn't give it any power over the US government. I mean, it could try to maliciously dump the bonds on the market but that is just shooting itself in the foot if those bonds are in high demand.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
I mean, this is unsustainable. Eventually people will stop buying your debt. Even if you are a massive economy. Maybe we are a long way from that point and could happily deficit spend for the next 50 years. Or maybe next year China decides they’ve had enough and starts selling off huge portions of their US debt holdings and bond prices fall massively while inflation starts kicking in.
I have no idea which is more likely, but I feel very confident saying you can’t deficit spend indefinitely. Eventually you will hit a point where you have so much debt that even small runs (compared to how much you owe) on selling off your debt will require so much printed money that it will send inflation through the roof.
Yes.
I am so completely sure that legalizing a method of above board bribery won't go awry.
There is some new economic theory going around that yes, you can't indefinitely but that the only numbers that matter are inflation. You can deficit spend with wild abandon...as long as interest is not climbing.
It isn't really new. The new version (MMT) goes farther with it than orthodox theory, but orthodox theory holds that a government can take out debt indefinitely as long as their GDP keeps growing and inflation is controlled.
the "no true scotch man" fallacy.
https://www.theepochtimes.com/chinas-possible-nuclear-option-of-dumping-us-treasuries-may-be-long-shot_2627030.html
China dumping bonds would basically be a drop in the bucket, while shooting itself in the foot because they'd have to sell them for less than they're worth in order to dump them.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
The Treasury auctioning bonds isn't bribery. I'm not sure how you're reaching this conclusion.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
The article you quoted said the results would be significant market dislocations in the short term. That doesn’t read like a drop in the bucket to me. But point taken, we aren’t past our limit yet.
But the whole “deficit spending is fine as long as inflation is low” is a ridiculous point to me. Let me perhaps reword my despute. There is a limit to the amount of debt you can have before inflation will rise significantly. So the above point is akin to someone saying they can spend whatever they want so long as they have money in the bank. Like no shit, that doesn’t mean you can spend whatever you want.
I remain unconvinced that we have a strong grasp on what debt level will start significantly increasing inflation. So to act like we are fine and dandy to start running at a 200% deficit indefinitely, to me seems short sited.
It looks like this:
1. Corporate savings sit in a bank. Bank buys bonds from the US government, increasing government debt.
2. The US government invests the money in the economy, building infrastructure and funding social programs.
3. Corporations see that there are new economic opportunities to invest in, and so draw down their savings to invest.
4. Taxes are paid on that investment, and increase in economic activity raises GDP, helping pay off the debt.
5. Corporations start saving more as they make profits on their investments. Repeat from step 1.
This would be a stable long term economic cycle.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
Sure, but what started this whole quote tree is that you seemed to imply that we don’t even really need taxes on corporations we can just deficit spend our way to utopia.
To which I was just trying to point out that there is a limit. Even governments can’t spend an unlimited amount of money. Eventually the bill comes due.
The argument that inflation is the right metric for determining the limits of deficit spending is a good one, but it doesn’t imply that there is no limit.
We'd still have taxes on income and payroll. I would just get rid of the corporate tax which, causes economic distortions when corporations try to monkey around it and favors big corporations with big accounting staff.
Something important to understand is the nature of deflation and inflation. Assuming a stable currency (i.e. not gold that has constant supply shocks, but a well managed fiat currency):
Deflation is the deferment of consumption. It happens when people decide to consume later, by saving money or paying down debt.
Inflation is the pulling forward of consumption. It happens when people decide to consume more now, either by going into debt or drawing down savings.
Taxation is a means of reducing inflation by reducing possible consumption. Raising interest rates causes deflation by making debt more difficult to take on, and lowering interest rates increases inflation by making it easier to take on.
The glut of corporate savings means a massive deferment of consumption. Consumption that the government can go into debt to use now, without causing inflation. By saving their money, the corporations have already caused the deflation that taxation of that money would have caused.
Also keep in mind that the Fed still has interest rates at historic lows. If spending causes too much inflation, the Fed has a lot of room to raise rates.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
This assumes growth forever though.
Specifically steps 3 and 4 assume that the corporations will always find space to create more economic activity, rather than this being constrained by natural limitations like limited land or resources.
Frankly, I see climate change as a natural fail state to this model, where increasing economic activity meant offloading more and more externalities, until it all becomes due for someone/everyone else.
But even if all externalities were kept tied to the polluting corporations, I still think the end game is like so many Transport Tycoon games, every opportunity is exploited and all available space is utilised.
So I expect steps 3 and 4 to break down given enough time.
Perhaps they already have, with companies investing in other companies rather than fuelling any economic growth.
If company A owns shares in company B, and company B owns shares in company A, and they keep only buying more ownership of each other, is there any increase in economic activity from this movement of money?
Yes supply shocks to the economy are an issue. This thread isn't about climate change so I have been avoiding that topic. We're kind of assuming that the world doesn't end.
If a corporation is not causing any economic activity by their movement of money, they've effectively erased that money from circulation. More room for inflationary government spending. What economic activity the private sector does not provide, the government must substitute for.
(Though if they're buying shares, someone is realizing capital gains and so must pay taxes, and how is the corporation worth anything if its not doing anything economically?)
All this is coming from someone who thinks global capitalism will kill us all with climate change. I'm with you there. But this discussion isn't about that.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".