CDZ Economics and equity

[320 Years of History]

Much of today's debate about U.S. economic policy focuses not on what courses of action (behavior) will maximize profits (or incomes in the case of individuals) but rather on emotional factors and assumptions such as:

• Home ownership is necessarily better than renting -- In the abstract, it is neither better nor worse; one needs shelter, not to own shelter. But given the current structure/real property subsidies of the tax code, it is more individually profitable in most cases to buy one's home than to rent it. It doesn't have to be that way; it just is that way due to the way our nation's public policy.
• The loss or decline (macroeconomically/within a national economy) in the quantity demanded for one class of job is worse than retaining it, in spite of there being one or more new classes of job available to take its place -- It would be a bad thing were there no alternative class of job available. It also would be if an entire class of employer exited the market and no other class entered the market to replace it.

Assumptions such as the two examples noted above (there are others) issue not from rational choices made to maximize -- long term or short term -- one's or a nation's economic profits.

So what underpins this emotional ardor folks have for the objects of their economic emotionalism. Well, in part, it's merely nostalgia or familiarity with a given economic model. Another part of it, however, is merely folks in essence saying things like:

• I lost my job and that's not fair. What did I do to deserve to be out of work?
• "So and so" makes "all that money" and buys all those "nice things," yet I can just barely make ends meet as I live a "run of the mill" lifestyle. How can that be fair? I don't need diamond studded escargot forks, but I think a dinner out at a "white tablecloth" restaurant isn't expecting too much for as hard as I work.
• "So and so" can meet with the President, or get his Senators on the phone when s/he calls them. I call and get a recording. If I send them an email, I never get a reply to the topic about which I expressed concern, but they sure do request that I donate money to the party/official's campaign fund. I shouldn't have to "pay" for access to my representative; I have one vote just as "so and so" does, and s/he doesn't even live in my state. How is that fair?

I can understand the very personal nature of the circumstances makes it very difficult for individuals to dissociate themselves from their status and what they would like to believe about it. Yet, that's exactly what economics insists everyone do. Quite simply, economics is among the most unbiased set of principles and theorems one can find. Economics doesn't care whether one wants to earn $50K/year. It merely says that the fact that one does is a reflection of the value consumers of one's labor place on the labor they buy from one. Economics says, "Fine. You don't like selling your lawn mowing skills, develop or develop and sell a different kind of labor that is in greater demand." It says that to individuals and businesses alike. Rational individuals and businesses heed that advice.

For example, one may recall that IBM used to make what was arguably the best typewriters around. Then along came the PC and IBM stopped making typewriters and shifted to making PCs. IBM wasn't the first makers of PCs, but it saw the train and "got on board." What about other typewriter makers? Well, a good many of them refused to shit to the new paradigm, personal computers, and went out of business. About 25 years after the advent of the personal computer, IBM exited the personal computer business, favoring the business of selling information and knowledge, thus was emerged IBM Global Services. Why? Quite simply because IBM saw that information was going to be more valuable (profitable) for a U.S.-based business than would consumer goods.

Was that really all that different a strategy than was selling typewriters? Not really. IBM has always been primarily a B2B producer/seller. When did IBM exist the PC market? Roughly when consumer demand, thus supply, for PCs became high enough that the prices, thus the profit margin declined to the point it just didn't make sense to keep selling them. Prior to that, businesses were the primary consumers of personal computers, and especially the high quality ones IBM was of a mind to sell.

IBM knew it could not sell computers at $1000 each when competitors sold substantively comparable ones for $600 each, and for most users' needs, an inexpensive personal computer works as effectively as an expensive one. Now it's whole different "ball game" for mainframes and enterprise servers, which IBM continues to build and sell.

For all else that IBM is, it is primarily a business that sells goods and services to other businesses. And why wouldn't it be? Businesses mostly make decisions based on rational factors, based on there being a sound business case for the decision. Individuals, on the other hand, might or might not make rational decisions about their own fortunes. How can a company like IBM make money in that part of the market when the case for buying an IBM product is based largely on a quantifiable economic value proposition, not on how well it makes someone feel.
​

So what are ways to maximize profits and yet have fairness in economic policy making? Well here are some ideas:

• Fairness as a Constraint on Profit Seeking: Entitlements in the Market
  
  Community standards of fairness for the setting of prices and wages were elicited by telephone surveys. In customer or labor markets, it is acceptable for a firms to raise prices (or cut wages) when profits are threatened and to maintain profits when costs diminish? It is unfair to exploit shifts in demand by raising prices or cutting wages? Several market anomalies are explained by assuming that these standards of fairness influence the behavior of firms?
  
  
• Fairness and the Assumption of Economics
  
  The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led and is continuing to lead to massive losses and damage for billions of people. Heavy central bank interventions and government spending programs have been launched worldwide and especially in the USA and Europe, with the hope to unfreeze credit and bolster consumption.
  
  Here, we present evidence and articulate a general framework that allows one to diagnose the fundamental cause of the unfolding financial and economic crisis: the accumulation of several bubbles and their interplay and mutual reinforcement has led to an illusion of a ``perpetual money machine'' allowing financial institutions to extract wealth from an unsustainable artificial process. Taking stock of this diagnostic, we conclude that many of the interventions to address the so-called liquidity crisis and to encourage more consumption are ill-advised and even dangerous, given that precautionary reserves were not accumulated in the ``good times'' but that huge liabilities were. The most ``interesting'' present times constitute unique opportunities but also great challenges, for which we offer a few recommendations.
  
  
• Theories of Fairness and Reciprocity - Evidence and Economic Applications
  
  Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.

Read the papers and share your thoughts on the ideas presented or build upon them and propose your own (rigorously thought out) alternatives.

 

[yiostheoy]

The main problem in the USA is that taxes on the People and on Corporations are too high WHILE government expenditure are also too high.

Reagan thought he could force restraint on the Fed Govt by first cutting taxes.

This did not work, it only caused skyrocketing deficits.

Subsequently GHW Bush and Clinton raised taxes somewhat again.

Then GW Bush cut taxes again and deficits skyrocketed again.

This was the last nail in the GOP coffin about the myth of cutting deficits ... the GOP is simply lying ... all they really want is more tax cuts for the rich.

Then BHO raised taxes somewhat again but only on the rich and famous.

Taxes are now where they were around the time of GWH.

But Fed expenditures are way too high still.

The USA either needs to collect tribute from foreign nations to pay the bill for being the world's policeman, or else the USA needs to stop being the world's policeman.

Ultimately taxes need to come down.

This is all consistent with what Trump is saying, however Trump's other utterances have all been frat boy comments at some drunken frat party.

Hillary will raise taxes on rich corporations which avoid tax by shifting production and profits overseas. This seems fair, and it will raise a little bit more revenue. However it won't solve any problems. Even so, Hillary looks and sounds "Presidential" and is more qualified than Trump.

While Reganomics was a disaster for the country and became the beginning of the disappearance of the middle class, Trump's proposals overall are just rehashed Reaganomics. Hillary pointed this out today while stumping.

There are no easy answers.

Americans need to stop spending more than they can afford without going into deep debt.

The next crash will be a credit balloon crash.

 

[320 Years of History]

Taxes are now where they were around the time of GWH.

Is "GWH" a typo for GHW Bush or Warren G. Harding?

 

[yiostheoy]

Taxes are now where they were around the time of GWH.

Is "GWH" a typo for GHW Bush or Warren G. Harding?

Nobody has talked about Harding in a very long time.

Maybe GWH Bush's mom and dad were playing a trick with his initials though.

 

[320 Years of History]

The main problem in the USA is that taxes on the People and on Corporations are too high WHILE government expenditure are also too high.

Reagan thought he could force restraint on the Fed Govt by first cutting taxes.

This did not work, it only caused skyrocketing deficits.

Subsequently GHW Bush and Clinton raised taxes somewhat again.

Then GW Bush cut taxes again and deficits skyrocketed again.

This was the last nail in the GOP coffin about the myth of cutting deficits ... the GOP is simply lying ... all they really want is more tax cuts for the rich.

Then BHO raised taxes somewhat again but only on the rich and famous.

Taxes are now where they were around the time of GWH.

But Fed expenditures are way too high still.

The USA either needs to collect tribute from foreign nations to pay the bill for being the world's policeman, or else the USA needs to stop being the world's policeman.

Ultimately taxes need to come down.

This is all consistent with what Trump is saying, however Trump's other utterances have all been frat boy comments at some drunken frat party.

Hillary will raise taxes on rich corporations which avoid tax by shifting production and profits overseas. This seems fair, and it will raise a little bit more revenue. However it won't solve any problems. Even so, Hillary looks and sounds "Presidential" and is more qualified than Trump.

While Reganomics was a disaster for the country and became the beginning of the disappearance of the middle class, Trump's proposals overall are just rehashed Reaganomics. Hillary pointed this out today while stumping.

There are no easy answers.

Americans need to stop spending more than they can afford without going into deep debt.

The next crash will be a credit balloon crash.

TY for your reply, but I don't understand how any of that constitutes a means for insinuating greater degrees of equity into economic policy making while also maximizing profits.

I understand the basic proposal you've offered, and since that is the "flavor" of fairness you want to discuss, okay...I'll "roll" with it, even though it's not thematically what I had in mind when I created the thread.

Your idea is to increase the tax rate on businesses that "park" revenue in non-U.S. locations. Well, the U.S. tax code already levies income tax against global, not just domestic, corporate income; however, the foreign-earned income is taxable only when it is returned to the U.S. entity's books of record. Now, yes, that's exactly what it sounds like, at least to us accountants. It's purely a tax accounting so-called "loophole." It's not illegal or shady, it's just the way the code is written. If there's anything unfair about it, it's only that individuals can't create subsidiaries of themselves and "park" their income offshore, whereas companies can, yet companies also demand and receive consideration in law and policy as though they were individuals. Thus being a corporation is often better than being a person. That's clearly not fair to individuals.

You've surely noticed that U.S. corporate entities are structured so that there is a parent company, sometimes even called a holding company, and a bunch of operating subsidiaries. That setup exists for one and only one reason: to take advantage of the way the corporate tax code is written.

You see, in accounting, the U.S. has two systems of accounting: tax accounting and financial accounting. Financial accounting is the accounting methods businesses use to measure and report financial performance to existing and potential owners. Tax accounting exists for the sake of minimizing one's tax liability to taxing authorities, federal, state and local, and that is what inspires companies to create an maintain totally separate books of record for a parent company and a swarm of subsidiary companies.

Under financial accounting, the business transactions of domestic and foreign units of the business are all reported as one in what are called consolidated financial statements. Thus, if domestically based Parent A makes $100 and foreign based Subsidiary AB makes $200, the company reports $300 of income and that's that. Under tax accounting, the subsidiary has to formally transfer the profit (or loss) to the parent and then the parent pays tax on the income transferred to the parent. If the sub never effects that transaction, the money (on the tax books) remains outside the scope of U.S. tax jurisdiction. Now does that mean the actual cash is sitting in a bank account somewhere overseas? Not at all. Where the money sits isn't relevant, and in many cases it's sitting in U.S. banks and investment instruments. Who owns it -- the parent or the sub -- is what the tax code cares about.

So how does one get rid of the inequity? Well, the way I suggested some time back is pretty simple: change the tax code so that companies are taxed on the income reported in the financial statements they prepare using financial accounting methods. That revision achieves a number of things:

• It gets rid of the administrative headache of having to maintain multiple books of record.
• It helps reduce the natural incentive to understate expenses and overstate revenue.
• It takes advantage of the fact that companies already must obtain audited financial statements in order to give confidence to potential and current investors.
• It makes the calculation of corporate income tax a very simple task: multiply the sum next to "net income" by a percentage and write a check in the amount of the product. Mail the check to the appropriate taxing authority.
• It eliminates the "loophole" of parking income offshore.

 

[Wilbur Right]

. It's purely a tax accounting so-called "loophole." It's not illegal or shady, it's just the way the code is written

If I, a lobbyist, promise to give you, my favorite congress person, a substantial amount of money for your re election campaign and in exchange I get a piece of legislation that directly benefits those I represent, how was that not shady? It may be legal because it was written by those who want to use this form of bribery to make it legal. But still......


Like you said above, sometimes being a corporation is better than being an individual. Lobbying is one of those times.

 

[Wilbur Right]

So how does one get rid of the inequity? Well, the way I suggested some time back is pretty simple: change the tax code so that companies are taxed on the income reported in the financial statements they prepare using financial accounting methods. That revision achieves a number of things:

Great question. How? Though I would ask why? Why would those in power, who have spent considerable time and money and effort to arrange our tax code to their benefit, why would they WANT to change the tax code to a more "fair system" when it has been working very well for.....them?

 

[yiostheoy]

The main problem in the USA is that taxes on the People and on Corporations are too high WHILE government expenditure are also too high.

Reagan thought he could force restraint on the Fed Govt by first cutting taxes.

This did not work, it only caused skyrocketing deficits.

Subsequently GHW Bush and Clinton raised taxes somewhat again.

Then GW Bush cut taxes again and deficits skyrocketed again.

This was the last nail in the GOP coffin about the myth of cutting deficits ... the GOP is simply lying ... all they really want is more tax cuts for the rich.

Then BHO raised taxes somewhat again but only on the rich and famous.

Taxes are now where they were around the time of GWH.

But Fed expenditures are way too high still.

The USA either needs to collect tribute from foreign nations to pay the bill for being the world's policeman, or else the USA needs to stop being the world's policeman.

Ultimately taxes need to come down.

This is all consistent with what Trump is saying, however Trump's other utterances have all been frat boy comments at some drunken frat party.

Hillary will raise taxes on rich corporations which avoid tax by shifting production and profits overseas. This seems fair, and it will raise a little bit more revenue. However it won't solve any problems. Even so, Hillary looks and sounds "Presidential" and is more qualified than Trump.

While Reganomics was a disaster for the country and became the beginning of the disappearance of the middle class, Trump's proposals overall are just rehashed Reaganomics. Hillary pointed this out today while stumping.

There are no easy answers.

Americans need to stop spending more than they can afford without going into deep debt.

The next crash will be a credit balloon crash.

TY for your reply, but I don't understand how any of that constitutes a means for insinuating greater degrees of equity into economic policy making while also maximizing profits.

I understand the basic proposal you've offered, and since that is the "flavor" of fairness you want to discuss, okay...I'll "roll" with it, even though it's not thematically what I had in mind when I created the thread.

Your idea is to increase the tax rate on businesses that "park" revenue in non-U.S. locations. Well, the U.S. tax code already levies income tax against global, not just domestic, corporate income; however, the foreign-earned income is taxable only when it is returned to the U.S. entity's books of record. Now, yes, that's exactly what it sounds like, at least to us accountants. It's purely a tax accounting so-called "loophole." It's not illegal or shady, it's just the way the code is written. If there's anything unfair about it, it's only that individuals can't create subsidiaries of themselves and "park" their income offshore, whereas companies can, yet companies also demand and receive consideration in law and policy as though they were individuals. Thus being a corporation is often better than being a person. That's clearly not fair to individuals.

You've surely noticed that U.S. corporate entities are structured so that there is a parent company, sometimes even called a holding company, and a bunch of operating subsidiaries. That setup exists for one and only one reason: to take advantage of the way the corporate tax code is written.

You see, in accounting, the U.S. has two systems of accounting: tax accounting and financial accounting. Financial accounting is the accounting methods businesses use to measure and report financial performance to existing and potential owners. Tax accounting exists for the sake of minimizing one's tax liability to taxing authorities, federal, state and local, and that is what inspires companies to create an maintain totally separate books of record for a parent company and a swarm of subsidiary companies.

Under financial accounting, the business transactions of domestic and foreign units of the business are all reported as one in what are called consolidated financial statements. Thus, if domestically based Parent A makes $100 and foreign based Subsidiary AB makes $200, the company reports $300 of income and that's that. Under tax accounting, the subsidiary has to formally transfer the profit (or loss) to the parent and then the parent pays tax on the income transferred to the parent. If the sub never effects that transaction, the money (on the tax books) remains outside the scope of U.S. tax jurisdiction. Now does that mean the actual cash is sitting in a bank account somewhere overseas? Not at all. Where the money sits isn't relevant, and in many cases it's sitting in U.S. banks and investment instruments. Who owns it -- the parent or the sub -- is what the tax code cares about.

So how does one get rid of the inequity? Well, the way I suggested some time back is pretty simple: change the tax code so that companies are taxed on the income reported in the financial statements they prepare using financial accounting methods. That revision achieves a number of things:

• It gets rid of the administrative headache of having to maintain multiple books of record.
• It helps reduce the natural incentive to understate expenses and overstate revenue.
• It takes advantage of the fact that companies already must obtain audited financial statements in order to give confidence to potential and current investors.
• It makes the calculation of corporate income tax a very simple task: multiply the sum next to "net income" by a percentage and write a check in the amount of the product. Mail the check to the appropriate taxing authority.
• It eliminates the "loophole" of parking income offshore.

Equity in economics is an issue of ethics.

Profitability is an issue of price maximization and cost minimization. No ethics involved in this at all.

So why do you mention both in the same paragraph ??

They have nothing in common.

 

[320 Years of History]

The main problem in the USA is that taxes on the People and on Corporations are too high WHILE government expenditure are also too high.

Reagan thought he could force restraint on the Fed Govt by first cutting taxes.

This did not work, it only caused skyrocketing deficits.

Subsequently GHW Bush and Clinton raised taxes somewhat again.

Then GW Bush cut taxes again and deficits skyrocketed again.

This was the last nail in the GOP coffin about the myth of cutting deficits ... the GOP is simply lying ... all they really want is more tax cuts for the rich.

Then BHO raised taxes somewhat again but only on the rich and famous.

Taxes are now where they were around the time of GWH.

But Fed expenditures are way too high still.

The USA either needs to collect tribute from foreign nations to pay the bill for being the world's policeman, or else the USA needs to stop being the world's policeman.

Ultimately taxes need to come down.

This is all consistent with what Trump is saying, however Trump's other utterances have all been frat boy comments at some drunken frat party.

Hillary will raise taxes on rich corporations which avoid tax by shifting production and profits overseas. This seems fair, and it will raise a little bit more revenue. However it won't solve any problems. Even so, Hillary looks and sounds "Presidential" and is more qualified than Trump.

While Reganomics was a disaster for the country and became the beginning of the disappearance of the middle class, Trump's proposals overall are just rehashed Reaganomics. Hillary pointed this out today while stumping.

There are no easy answers.

Americans need to stop spending more than they can afford without going into deep debt.

The next crash will be a credit balloon crash.

TY for your reply, but I don't understand how any of that constitutes a means for insinuating greater degrees of equity into economic policy making while also maximizing profits.

I understand the basic proposal you've offered, and since that is the "flavor" of fairness you want to discuss, okay...I'll "roll" with it, even though it's not thematically what I had in mind when I created the thread.

Your idea is to increase the tax rate on businesses that "park" revenue in non-U.S. locations. Well, the U.S. tax code already levies income tax against global, not just domestic, corporate income; however, the foreign-earned income is taxable only when it is returned to the U.S. entity's books of record. Now, yes, that's exactly what it sounds like, at least to us accountants. It's purely a tax accounting so-called "loophole." It's not illegal or shady, it's just the way the code is written. If there's anything unfair about it, it's only that individuals can't create subsidiaries of themselves and "park" their income offshore, whereas companies can, yet companies also demand and receive consideration in law and policy as though they were individuals. Thus being a corporation is often better than being a person. That's clearly not fair to individuals.

You've surely noticed that U.S. corporate entities are structured so that there is a parent company, sometimes even called a holding company, and a bunch of operating subsidiaries. That setup exists for one and only one reason: to take advantage of the way the corporate tax code is written.

You see, in accounting, the U.S. has two systems of accounting: tax accounting and financial accounting. Financial accounting is the accounting methods businesses use to measure and report financial performance to existing and potential owners. Tax accounting exists for the sake of minimizing one's tax liability to taxing authorities, federal, state and local, and that is what inspires companies to create an maintain totally separate books of record for a parent company and a swarm of subsidiary companies.

Under financial accounting, the business transactions of domestic and foreign units of the business are all reported as one in what are called consolidated financial statements. Thus, if domestically based Parent A makes $100 and foreign based Subsidiary AB makes $200, the company reports $300 of income and that's that. Under tax accounting, the subsidiary has to formally transfer the profit (or loss) to the parent and then the parent pays tax on the income transferred to the parent. If the sub never effects that transaction, the money (on the tax books) remains outside the scope of U.S. tax jurisdiction. Now does that mean the actual cash is sitting in a bank account somewhere overseas? Not at all. Where the money sits isn't relevant, and in many cases it's sitting in U.S. banks and investment instruments. Who owns it -- the parent or the sub -- is what the tax code cares about.

So how does one get rid of the inequity? Well, the way I suggested some time back is pretty simple: change the tax code so that companies are taxed on the income reported in the financial statements they prepare using financial accounting methods. That revision achieves a number of things:

• It gets rid of the administrative headache of having to maintain multiple books of record.
• It helps reduce the natural incentive to understate expenses and overstate revenue.
• It takes advantage of the fact that companies already must obtain audited financial statements in order to give confidence to potential and current investors.
• It makes the calculation of corporate income tax a very simple task: multiply the sum next to "net income" by a percentage and write a check in the amount of the product. Mail the check to the appropriate taxing authority.
• It eliminates the "loophole" of parking income offshore.

Equity in economics is an issue of ethics.

Profitability is an issue of price maximization and cost minimization. No ethics involved in this at all.

So why do you mention both in the same paragraph ??

They have nothing in common.

Red:
...Because they are both outcomes that need to be achieved.

 

[320 Years of History]

Why would those in power, who have spent considerable time and money and effort to arrange our tax code to their benefit, why would they WANT to change the tax code to a more "fair system" when it has been working very well for.....them?

About the only reason I can think of is because the people who vote commit to and follow through on not reelecting politicians who do not act to "clean up" the electoral process. It's no easy thing to coalesce actual voters to do that. For example, many voters feel Congress is "rotten," but election after election, they send their own Representative and Senator back to Washington.

 

[yiostheoy]

The main problem in the USA is that taxes on the People and on Corporations are too high WHILE government expenditure are also too high.

Reagan thought he could force restraint on the Fed Govt by first cutting taxes.

This did not work, it only caused skyrocketing deficits.

Subsequently GHW Bush and Clinton raised taxes somewhat again.

Then GW Bush cut taxes again and deficits skyrocketed again.

This was the last nail in the GOP coffin about the myth of cutting deficits ... the GOP is simply lying ... all they really want is more tax cuts for the rich.

Then BHO raised taxes somewhat again but only on the rich and famous.

Taxes are now where they were around the time of GWH.

But Fed expenditures are way too high still.

The USA either needs to collect tribute from foreign nations to pay the bill for being the world's policeman, or else the USA needs to stop being the world's policeman.

Ultimately taxes need to come down.

This is all consistent with what Trump is saying, however Trump's other utterances have all been frat boy comments at some drunken frat party.

Hillary will raise taxes on rich corporations which avoid tax by shifting production and profits overseas. This seems fair, and it will raise a little bit more revenue. However it won't solve any problems. Even so, Hillary looks and sounds "Presidential" and is more qualified than Trump.

While Reganomics was a disaster for the country and became the beginning of the disappearance of the middle class, Trump's proposals overall are just rehashed Reaganomics. Hillary pointed this out today while stumping.

There are no easy answers.

Americans need to stop spending more than they can afford without going into deep debt.

The next crash will be a credit balloon crash.

TY for your reply, but I don't understand how any of that constitutes a means for insinuating greater degrees of equity into economic policy making while also maximizing profits.

I understand the basic proposal you've offered, and since that is the "flavor" of fairness you want to discuss, okay...I'll "roll" with it, even though it's not thematically what I had in mind when I created the thread.

Your idea is to increase the tax rate on businesses that "park" revenue in non-U.S. locations. Well, the U.S. tax code already levies income tax against global, not just domestic, corporate income; however, the foreign-earned income is taxable only when it is returned to the U.S. entity's books of record. Now, yes, that's exactly what it sounds like, at least to us accountants. It's purely a tax accounting so-called "loophole." It's not illegal or shady, it's just the way the code is written. If there's anything unfair about it, it's only that individuals can't create subsidiaries of themselves and "park" their income offshore, whereas companies can, yet companies also demand and receive consideration in law and policy as though they were individuals. Thus being a corporation is often better than being a person. That's clearly not fair to individuals.

You've surely noticed that U.S. corporate entities are structured so that there is a parent company, sometimes even called a holding company, and a bunch of operating subsidiaries. That setup exists for one and only one reason: to take advantage of the way the corporate tax code is written.

You see, in accounting, the U.S. has two systems of accounting: tax accounting and financial accounting. Financial accounting is the accounting methods businesses use to measure and report financial performance to existing and potential owners. Tax accounting exists for the sake of minimizing one's tax liability to taxing authorities, federal, state and local, and that is what inspires companies to create an maintain totally separate books of record for a parent company and a swarm of subsidiary companies.

Under financial accounting, the business transactions of domestic and foreign units of the business are all reported as one in what are called consolidated financial statements. Thus, if domestically based Parent A makes $100 and foreign based Subsidiary AB makes $200, the company reports $300 of income and that's that. Under tax accounting, the subsidiary has to formally transfer the profit (or loss) to the parent and then the parent pays tax on the income transferred to the parent. If the sub never effects that transaction, the money (on the tax books) remains outside the scope of U.S. tax jurisdiction. Now does that mean the actual cash is sitting in a bank account somewhere overseas? Not at all. Where the money sits isn't relevant, and in many cases it's sitting in U.S. banks and investment instruments. Who owns it -- the parent or the sub -- is what the tax code cares about.

So how does one get rid of the inequity? Well, the way I suggested some time back is pretty simple: change the tax code so that companies are taxed on the income reported in the financial statements they prepare using financial accounting methods. That revision achieves a number of things:

• It gets rid of the administrative headache of having to maintain multiple books of record.
• It helps reduce the natural incentive to understate expenses and overstate revenue.
• It takes advantage of the fact that companies already must obtain audited financial statements in order to give confidence to potential and current investors.
• It makes the calculation of corporate income tax a very simple task: multiply the sum next to "net income" by a percentage and write a check in the amount of the product. Mail the check to the appropriate taxing authority.
• It eliminates the "loophole" of parking income offshore.

Equity in economics is an issue of ethics.

Profitability is an issue of price maximization and cost minimization. No ethics involved in this at all.

So why do you mention both in the same paragraph ??

They have nothing in common.

Red:
...Because they are both outcomes that need to be achieved.

You cannot have your cake and eat it too.

 

[320 Years of History]

. It's purely a tax accounting so-called "loophole." It's not illegal or shady, it's just the way the code is written

If I, a lobbyist, promise to give you, my favorite congress person, a substantial amount of money for your re election campaign and in exchange I get a piece of legislation that directly benefits those I represent, how was that not shady? It may be legal because it was written by those who want to use this form of bribery to make it legal. But still......

Like you said above, sometimes being a corporation is better than being an individual. Lobbying is one of those times.

Yes, well, credit a number of things for that:

• Citizens United
  • When the balance of power changes on Capitol Hill, the contributions from interest groups shift almost immediately to the party in control.
    
    
    
    
    
    
    
    
• The design of the FEC's board of commissioners -- How anyone in their right mind thinks that six partisan appointees, three from each major party, are ever going to do much other than agree to disagree is beyond me.
  • Add one or remove one; revise the make-up of the commission entirely; I don't care which. Ideally, IMO, the commission would be comprised of one person from each political "affiliation" in the country: Dem, Rep, Libertarian, Green and Independent.
  • Force the balance of political sway to shift back and forth so that neither party holds sway in consecutive federal election years.

 

[320 Years of History]

The main problem in the USA is that taxes on the People and on Corporations are too high WHILE government expenditure are also too high.

Reagan thought he could force restraint on the Fed Govt by first cutting taxes.

This did not work, it only caused skyrocketing deficits.

Subsequently GHW Bush and Clinton raised taxes somewhat again.

Then GW Bush cut taxes again and deficits skyrocketed again.

This was the last nail in the GOP coffin about the myth of cutting deficits ... the GOP is simply lying ... all they really want is more tax cuts for the rich.

Then BHO raised taxes somewhat again but only on the rich and famous.

Taxes are now where they were around the time of GWH.

But Fed expenditures are way too high still.

The USA either needs to collect tribute from foreign nations to pay the bill for being the world's policeman, or else the USA needs to stop being the world's policeman.

Ultimately taxes need to come down.

This is all consistent with what Trump is saying, however Trump's other utterances have all been frat boy comments at some drunken frat party.

Hillary will raise taxes on rich corporations which avoid tax by shifting production and profits overseas. This seems fair, and it will raise a little bit more revenue. However it won't solve any problems. Even so, Hillary looks and sounds "Presidential" and is more qualified than Trump.

While Reganomics was a disaster for the country and became the beginning of the disappearance of the middle class, Trump's proposals overall are just rehashed Reaganomics. Hillary pointed this out today while stumping.

There are no easy answers.

Americans need to stop spending more than they can afford without going into deep debt.

The next crash will be a credit balloon crash.

TY for your reply, but I don't understand how any of that constitutes a means for insinuating greater degrees of equity into economic policy making while also maximizing profits.

I understand the basic proposal you've offered, and since that is the "flavor" of fairness you want to discuss, okay...I'll "roll" with it, even though it's not thematically what I had in mind when I created the thread.

Your idea is to increase the tax rate on businesses that "park" revenue in non-U.S. locations. Well, the U.S. tax code already levies income tax against global, not just domestic, corporate income; however, the foreign-earned income is taxable only when it is returned to the U.S. entity's books of record. Now, yes, that's exactly what it sounds like, at least to us accountants. It's purely a tax accounting so-called "loophole." It's not illegal or shady, it's just the way the code is written. If there's anything unfair about it, it's only that individuals can't create subsidiaries of themselves and "park" their income offshore, whereas companies can, yet companies also demand and receive consideration in law and policy as though they were individuals. Thus being a corporation is often better than being a person. That's clearly not fair to individuals.

You've surely noticed that U.S. corporate entities are structured so that there is a parent company, sometimes even called a holding company, and a bunch of operating subsidiaries. That setup exists for one and only one reason: to take advantage of the way the corporate tax code is written.

You see, in accounting, the U.S. has two systems of accounting: tax accounting and financial accounting. Financial accounting is the accounting methods businesses use to measure and report financial performance to existing and potential owners. Tax accounting exists for the sake of minimizing one's tax liability to taxing authorities, federal, state and local, and that is what inspires companies to create an maintain totally separate books of record for a parent company and a swarm of subsidiary companies.

Under financial accounting, the business transactions of domestic and foreign units of the business are all reported as one in what are called consolidated financial statements. Thus, if domestically based Parent A makes $100 and foreign based Subsidiary AB makes $200, the company reports $300 of income and that's that. Under tax accounting, the subsidiary has to formally transfer the profit (or loss) to the parent and then the parent pays tax on the income transferred to the parent. If the sub never effects that transaction, the money (on the tax books) remains outside the scope of U.S. tax jurisdiction. Now does that mean the actual cash is sitting in a bank account somewhere overseas? Not at all. Where the money sits isn't relevant, and in many cases it's sitting in U.S. banks and investment instruments. Who owns it -- the parent or the sub -- is what the tax code cares about.

So how does one get rid of the inequity? Well, the way I suggested some time back is pretty simple: change the tax code so that companies are taxed on the income reported in the financial statements they prepare using financial accounting methods. That revision achieves a number of things:

• It gets rid of the administrative headache of having to maintain multiple books of record.
• It helps reduce the natural incentive to understate expenses and overstate revenue.
• It takes advantage of the fact that companies already must obtain audited financial statements in order to give confidence to potential and current investors.
• It makes the calculation of corporate income tax a very simple task: multiply the sum next to "net income" by a percentage and write a check in the amount of the product. Mail the check to the appropriate taxing authority.
• It eliminates the "loophole" of parking income offshore.

Equity in economics is an issue of ethics.

Profitability is an issue of price maximization and cost minimization. No ethics involved in this at all.

So why do you mention both in the same paragraph ??

They have nothing in common.

Red:
...Because they are both outcomes that need to be achieved.

You cannot have your cake and eat it too.

....Even as I can't do that, which I cannot, you seem able to pick any metaphor that sounds good and toss it out there. "Having one's cake and eating it too" necessarily requires that the thing at hand -- the "cake" -- remain "intact and eaten" while also achieving mutually exclusive objectives for having the "cake" in the first place.

In your mind, profit maximization (I presume "price maximization" was a typo) and equity in economics are unrelated, thus different "cakes" not the same one or even the same kind of "cake." Yet now you toss that "cake" cliche my way. So, if profit maximization and fairness are two different cakes, I can have one, the other or both. If profit maximization and fairness not the "cakes," they must then be the outcomes, in which case, what, in your mind, is the "cake?"

 

[alang1216]

Much of today's debate about U.S. economic policy focuses not on what courses of action (behavior) will maximize profits (or incomes in the case of individuals) but rather on emotional factors and assumptions such as:

• Home ownership is necessarily better than renting -- In the abstract, it is neither better nor worse; one needs shelter, not to own shelter. But given the current structure/real property subsidies of the tax code, it is more individually profitable in most cases to buy one's home than to rent it. It doesn't have to be that way; it just is that way due to the way our nation's public policy.
• The loss or decline (macroeconomically/within a national economy) in the quantity demanded for one class of job is worse than retaining it, in spite of there being one or more new classes of job available to take its place -- It would be a bad thing were there no alternative class of job available. It also would be if an entire class of employer exited the market and no other class entered the market to replace it.

Assumptions such as the two examples noted above (there are others) issue not from rational choices made to maximize -- long term or short term -- one's or a nation's economic profits.

I beg to differ. I've lived in neighborhoods where most people rented their homes and I've lived in neighborhoods where most people owned their homes. Regardless of the economics I prefer to live with owners. Economics is important but quality of life is also important.

Keep in mind, we don't really live in a capitalist economy, there are restrictions, regulations, taxes for non-economic purposes, etc. I think the only people who prize the free market are professors, writers, and ideologues. The only businesses that clamor for a free market are those just starting out. Once they are established it is in their interests to form a monopoly, secure tax breaks, establish anti-competitive agreements with other businesses, etc.

 

[alang1216]

Why would those in power, who have spent considerable time and money and effort to arrange our tax code to their benefit, why would they WANT to change the tax code to a more "fair system" when it has been working very well for.....them?

About the only reason I can think of is because the people who vote commit to and follow through on not reelecting politicians who do not act to "clean up" the electoral process. It's no easy thing to coalesce actual voters to do that. For example, many voters feel Congress is "rotten," but election after election, they send their own Representative and Senator back to Washington.

Its the golden rule. If we, the electorate won't pay good salaries and fund campaigns someone else will.