Ornery.org
  Front Page   |   About Ornery.org   |   World Watch   |   Guest Essays   |   Contact Us

The Ornery American Forum Post New Topic  Post A Reply
my profile login | register | search | faq | forum home

  next oldest topic   next newest topic
» The Ornery American Forum » General Comments » The Real Solyndra Scandal - the huge success of the government program behind it (Page 2)

 - UBBFriend: Email this page to someone!   This topic comprises 2 pages: 1  2   
Author Topic: The Real Solyndra Scandal - the huge success of the government program behind it
The Drake
Member
Member # 2128

 - posted      Profile for The Drake   Email The Drake   Send New Private Message       Edit/Delete Post   Reply With Quote 
You are conflating multiple concepts, Pyr. Volatility can happen whether we are talking about tax promoting reinvestment or not. That's a whole other thing worth talking about, but generally this is due to day trading rules, computer algorithms, and a host of other issues, some of which you have listed. I'd be happy to have that conversation separately.

"Real" investment pays off in two ways, growth and dividend. No investor makes an investment to leave it there indefinitely. As long as a company does well, a "long" investor will hold on. Intel, for instance, has a long history of innovation - and also a lot of trading volume as people wonder if they can keep it going.

Many successful companies buck this trend of short-term quarterly concern and reward investors (like me) handsomely. Costco is a great example of a company investing in its workforce, avoiding costly downtime and training costs. Higher taxation rates certainly wouldn't make that any easier for them, as they currently reward their investors via dividends as well. Dividend payment actually encourages long-term investing because you don't have to sell the stock to gain income from it. But, you will get taxed on dividends which makes it a hard choice at times.

Posts: 7707 | Registered: Oct 2004  |  IP: Logged | Report this post to a Moderator
The Drake
Member
Member # 2128

 - posted      Profile for The Drake   Email The Drake   Send New Private Message       Edit/Delete Post   Reply With Quote 
I should actually qualify that as well. In all of that post, I am talking about equity investors owning stock. You can also be a debt investor, buying a corporate bond. This also fuels growth of the company, but in a way that doesn't get taxed. And it guarantees the investor a steady income regardless if the company makes money or grows - as long as it doesn't default in bankruptcy.
Posts: 7707 | Registered: Oct 2004  |  IP: Logged | Report this post to a Moderator
Pyrtolin
Member
Member # 2638

 - posted      Profile for Pyrtolin   Email Pyrtolin   Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
Volatility can happen whether we are talking about tax promoting reinvestment or not. That's a whole other thing worth talking about, but generally this is due to day trading rules, computer algorithms, and a host of other issues, some of which you have listed. I'd be happy to have that conversation separately.
Those are the most egregious forms, but what many of the private equity firms are essentially those tactics, refined to sit on just this side of legality. Buying a company, using it to take out loans to pump up its financials, then selling it off at a higher, even more unsustainable place, once they've made it look more valuable.

OR what happened in the real estate market- generating and selling off loans that they knew would fail, but letting someone else pick up the risk once they'd taken the profits.

Any process that's money->money->money and not money->product->money should be looked at askance and treated very unfavorably by the tax code, because it's very easy to game the short term risk so that someone else is left holding the back when it collapses, and there's been no increase in real production in the process to actually justify the profits. They'll lay people off, cut pay, lower benefits, all to squeeze a little more money out now, and them let someone else deal with the fact that there's no blood left in the stone after they pass it on.

quote:
"Real" investment pays off in two ways, growth and dividend. No investor makes an investment to leave it there indefinitely. As long as a company does well, a "long" investor will hold on.
Indeed- which is why taxes should be set on a marginal basis. A baseline level of profits that's free and clear, but diminishing returns as the margin widens and indicates less efficient and more profit-taking over productive investment. Real investment is a long term game that's hurt by short term speculation. The benefit of deferring income over a certain basic margin by reinventing it should be encouraged, and the only way to do that is to make sure that the risk/reward ration of doing so remains higher than simply taking the money out and dropping it into high return/low productivity investments.

quote:
Costco is a great example of a company investing in its workforce, avoiding costly downtime and training costs. Higher taxation rates certainly wouldn't make that any easier for them, as they currently reward their investors via dividends as well.
CostCo is also very distinctive because it's owner has stood up to investors and told them to get out if they wanted higher short term returns from cutting back on just those long term policies. I'm not suggesting that it shouldn't reward its investors well, but I imagine that higher taxes would have no effect on it, because it already makes the kind of long term investments that would keep it under the effect of high margin increases to begin with. The point would be to make behaving like CostCo more profitable across the board because pressure to cut corners, lower benefits and wages, etc... would represent low marginal benefit to investors in comparison to making those investments and being able to realize greater long term rewards.

The fact that CostCo stands out for doing what's right despite tax incentives that would lead to a bigger short term payout for investors (who would take the payoff from the squeezings, then ditch out to the next host as soon at the model begins to fall apart) gets to the heart of the problem. IT should be what we expect from every company, with the ones that skimp on such investments to pad profit taking being the rare exception, and seeing little benefit from doing so, because they run afoul of marginal rates that impute their returns.

Posts: 11997 | Registered: Oct 2005  |  IP: Logged | Report this post to a Moderator
Fenring
Member
Member # 6953

 - posted      Profile for Fenring   Email Fenring       Edit/Delete Post   Reply With Quote 
quote:
Originally posted by Pyrtolin:
Any process that's money->money->money and not money->product->money should be looked at askance and treated very unfavorably by the tax code, because it's very easy to game the short term risk so that someone else is left holding the back when it collapses, and there's been no increase in real production in the process to actually justify the profits. They'll lay people off, cut pay, lower benefits, all to squeeze a little more money out now, and them let someone else deal with the fact that there's no blood left in the stone after they pass it on.

I'm 100% with Pyr on this issue.
Posts: 1636 | Registered: Oct 2014  |  IP: Logged | Report this post to a Moderator
DonaldD
Member
Member # 1052

 - posted      Profile for DonaldD   Email DonaldD   Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
Originally posted by The Drake:
Wow, that's a really odd treatment, Greg. Yes, it is possible for a company to make the best of a bad situation, like massive taxation. What makes you think that had shareholders received profits that it would not be invested in various other endeavors resulting in economic growth?

If the profit was directed to the shareholders, even if all the shareholders reinvested 100% of their dividends in "endeavors resulting in economic growth", that would still have only resulted in only 20% of the total profit amount being reinvested in growth - the rest going to taxes; whereas Boeing reinvesting it directly was able to apply 100% of the profits to 'growth'.

I don't know whether the 20% now vs 100% into R&D wold be better for the investors, but I doubt whether that particular tax rate was tuned for what is best for those specific investors...

Posts: 10751 | Registered: May 2003  |  IP: Logged | Report this post to a Moderator
Pyrtolin
Member
Member # 2638

 - posted      Profile for Pyrtolin   Email Pyrtolin   Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
Any process that's money->money->money and not money->product->money should be looked at askance and treated very unfavorably by the tax code
This, incidentally, is also why I'm in favor of pushing money into the economy via basic income and other methods that favor the poor. Less central planning (government picking what people need an buying it for them) hand in hand with an MPM cycle. Give the money to profitable companies, and they're more likely to use it to pad an MMM cycle, since there's no net benefit to MPM at that point. But give it to people who meed stuff, and they'll spend it on things they need, while the companies that want that money will need to uses MPM to capture it. (The most forward thinking will tend to buy things that they need to make more money, also playing into that cycle). And while some does going into the hands of people that don't need to buy much more, it ends up being a relatively small amount, so it doesn't inflame financial investment or inflationary bidding activity significantly.
Posts: 11997 | Registered: Oct 2005  |  IP: Logged | Report this post to a Moderator
Pyrtolin
Member
Member # 2638

 - posted      Profile for Pyrtolin   Email Pyrtolin   Send New Private Message       Edit/Delete Post   Reply With Quote 
quote:
If the profit was directed to the shareholders, even if all the shareholders reinvested 100% of their dividends in "endeavors resulting in economic growth", that would still have only resulted in only 20% of the total profit amount being reinvested in growth - the rest going to taxes; whereas Boeing reinvesting it directly was able to apply 100% of the profits to 'growth'.
And, don't forget, then pay the shareholders returns on that investment in a future tax cycle where the were under the threshold that triggered the high tax margin.

That's the important trick - not to discourage _all_ shareholder returns, but to create an incentive to keep deferring returns over a certain threshold to the future so that shareholders are invested in the long game, with each successive cycle making them more interested in the long term health and profitability of the company, whereas the current market creates incentives to create a short term spick and an active disincentive to defer profits past the point where you jump ship and get out.

A similar principle applies to high marginal personal incomes. With high rates, companies have an incentive to provide compensation that defers income to future tax cycles, so that executives not only have a long term interest in managing the company properly, but are more invested in it maintaining its health long after they leave, instead of employing the current golden parachute model that encourages the game of driving companies into the ground and then jumping ship at the most lucrative point. (Then using their dominant control of companies through various stock holdings to appoint each other to new executive positions and repeat the process)

[ June 25, 2015, 03:49 PM: Message edited by: Pyrtolin ]

Posts: 11997 | Registered: Oct 2005  |  IP: Logged | Report this post to a Moderator
  This topic comprises 2 pages: 1  2   

Quick Reply
Message:

HTML is not enabled.
UBB Code™ is enabled.
UBB Code™ Images not permitted.
Instant Graemlins
   


Post New Topic  Post A Reply Close Topic   Feature Topic   Move Topic   Delete Topic next oldest topic   next newest topic
 - Printer-friendly view of this topic
Hop To:


Contact Us | Ornery.org Front Page

Powered by Infopop Corporation
UBB.classic™ 6.7.1