White House Chronicle

News Analysis With a Sense of Humor

  • Home
  • King’s Commentaries
  • Random Features
  • Photos
  • Public Speaker
  • WHC Episodes
  • About WHC
  • Carrying Stations
  • ME/CFS Alert
  • Contact Us

Welcome to the World of Unintended Consequences — Tax

September 29, 2017 by Llewellyn King Leave a Comment

An open letter to the tax writers of Congress:

Even us laymen, us non-economists have opinions about taxes. We pay them. We also benefit from loopholes and are punished for being not rich enough to have investments that lighten the tax load.

Those at the bottom of the tax ladder seem to pay their taxes with more equanimity than those at the top.

For more than three decades, I operated a small business. Over the years, I employed hundreds of people and all were keenly interested in what they would be paid, but none — not one ever — asked what their take home pay would be or how that could be finagled, as with benefits. In business parlance, they were interested only in the top line, not the bottom line.

By the same token, other small businesses seemed to be unbothered by taxation, although they all relied on accountants to get them the best deal. Taxes were not a subject that came up in in our trade association meetings. T.J. Zlotnitsky, a member of the progressive Patriotic Millionaires, told me that he and other very successful businesses were not crippled by taxes and saw them as a necessity — a cost of being in business, if you will. Billionaire Warren Buffet and economist-actor-writer Ben Stein echo that view.

But big business, unlike small business, and its agents from trade associations to their lobbyists, believes that tax rates are the problem. Take the issue of U.S. companies whose offshore subsidiaries earn profits that are retained in foreign countries to defer paying U.S. corporate tax. It is an act of Republican theology that this money would come back instantly to the United States if the tax threat were removed and that it would be invested in new enterprise, plant and products here.

It is as likely that this money will be used to buy back stock. There are plenty of companies right here in the United States sitting on billions of dollars, not investing them either here or overseas. Explain, please.

Perhaps tax rates, assuming they are the effective rate that will be paid (seldom the case), should be thought of in terms of pricing. Pricing is a whole science, possibly an art. There is a sweet spot in pricing where buyers and sellers agree.

For President Trump and Congress to say that sweet spot is 20 percent for corporations and 35 percent for individuals is arbitrary. Despite company “inversions,” where they move their domicile to tax-friendly countries, corporations, as measured by earnings, are doing nicely, thanks.

It is true that high tax rates discourage investment and lead to capital flight. But there are glaring exceptions: Why are companies flocking to high-tax Massachusetts rather than low-tax New Hampshire?

My own guess is that the sweet spot is between 25 percent for corporations and 30 percent for individuals. I expect to be disabused.

New York, by national standards, is heavily taxed, but businesses and people are pouring in. Explain perceived value, please.

Yet after World War II, when taxes really were too high in Britain, many moneyed people, including almost all the film stars, established residences in Switzerland to escape confiscatory taxes: 90 percent was just too much for the likes of Noel Coward and David Niven. Ninety percent was a sour spot, very sour.

Then, there is the highly speculative issue of how tax reduction will trigger growth. It is an argument that would not pass the loan committee at the local bank: the idea that increasing debt now will lead to huge growth later. Take a piece graph paper and draw an ascending line, make no provision for recession, war or, as now, acts of God. Is it believable?

Finally, there is the vexing question of estate taxes, which — with fiendish cleverness — the opponents have labeled “death taxes.”

The fact is that if you remove or reduce these, you guarantee less revenue. But, more important, in a time when the economy has created many billionaires, you risk the creation of super class of Americans, rich in perpetuity and growing richer with even the most conservative investments: a feudalization of the United States.

Is that the America which is great (again)?

Taxation is all about unintended consequences.

Email, RSS Follow
Email

Filed Under: King's Commentaries

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

White House Chronicle on Social

  • Facebook
  • Twitter
  • Vimeo
  • YouTube
Game-Changing Wind Turbines Harvest Underused Resource Close To The Ground

Game-Changing Wind Turbines Harvest Underused Resource Close To The Ground

Llewellyn King

Jimmy Dean, the country musician, actor and entrepreneur, famously said: “I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.” A new wind turbine from a California startup, Wind Harvest, takes Dean’s maxim to heart and applies it to wind power generation. It goes after untapped, […]

Farewell to the U.S. as the World’s Top Science Nation

Llewellyn King

When I asked John Savage, the retired co-founder of the Department of Computer Science at Brown University, what the essential ingredient in research is, he responded with one word: “Passion.” It is passion that keeps scientists going, dead end after dead end, until there is a breakthrough. It is passion that keeps them at the […]

Europe Knows Russia and Is Deeply Afraid

Europe Knows Russia and Is Deeply Afraid

Llewellyn King

Europe is naked and afraid. That was the message at a recent meeting of the U.K. Section of the Association of European Journalists (AEJ), at which I was an invited speaker. It preceded a stark warning just over a week later from NATO Secretary General Mark Rutte, also speaking in London, who said the danger […]

A Commencement Address — Get Used to Rejections, We All Get Them Sometimes

A Commencement Address — Get Used to Rejections, We All Get Them Sometimes

Llewellyn King

It is school commencement season. So I am taking the liberty of sharing my column of May 10, 2024, which was first published by InsideSources, and later published by newspapers across the country.  As so many commencement addresses haven’t been delivered yet this year, I thought I would share what I would have said to […]

Copyright © 2025 · White House Chronicle Theme on Genesis Framework · WordPress · Log in