GOP TAX PLAN

[Sea Dangles]

Hahaha,a professor
No agenda there,move along
Posted from my iPhone/Mobile device

[spence]

Originally Posted by Jim in CT

Spence, tell me where this statement is wrong, please...

Corporate income taxes are the cost of corporate income. When the cost of income decreases, the demand for income will increase. Some corporate projects might not make economic sense to undertake at a tax rate of 35%, but would make perfect sense at a tax rate of 20%.

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
Posted from my iPhone/Mobile device

[scottw]

Originally Posted by spence

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
Posted from my iPhone/Mobile device

that's right....dazzle him with BS

[spence]

Originally Posted by Sea Dangles

Hahaha,a professor
No agenda there,move along
Posted from my iPhone/Mobile device

Yeah, those agricultural professors are known to be big snowflakes after all.
Posted from my iPhone/Mobile device

[Jim in CT]

Originally Posted by spence

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
Posted from my iPhone/Mobile device

"The front half of your statement doesn't make any sense. "

If a business makes a dollar of income, today they owe Uncle Sam 35 cents. Am I going too fast for you?

"In capital budgeting the tax rate is just one variable in the calculation"

Agreed. But the cost associated with that one variable, is set to decrease significantly. So all other things being equal, when doing a cost/benefit analysis, the cost is going to decrease. Which makes investments look more attractive. This cannot fail to occur.

[Jim in CT]

Originally Posted by spence

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
Posted from my iPhone/Mobile device

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide"

Pure speculation on your part.

Cutting the corporate tax rate tilts the scales of the cost/benefit math. It doesn't make every single project now viable. But it makes more projects viable.

Corporations often look for a 15% return on any investments. Being able to keep 80% of income versus 65%, is not an insignificant shift.




"

[Jim in CT]

Originally Posted by spence

Small business could be different.
Posted from my iPhone/Mobile device

And what are most businesses? Small or large?

[Sea Dangles]

Originally Posted by spence

Yeah, those agricultural professors are known to be big snowflakes after all.
Posted from my iPhone/Mobile device

Jeff, pretty much ALL professors fall under the snowflake umbrella,but you know that. Sorry to distract from you acting silly again.
Posted from my iPhone/Mobile device

[spence]

Originally Posted by Jim in CT

If a business makes a dollar of income, today they owe Uncle Sam 35 cents. Am I going too fast for you?

Your wit is dizzying.

Agreed. But the cost associated with that one variable, is set to decrease significantly. So all other things being equal, when doing a cost/benefit analysis, the cost is going to decrease. Which makes investments look more attractive. This cannot fail to occur.

In simple terms, if you were to make a 10m capital investment that hoped to net 1.5m in profit, the proposed difference in marginal corporate taxes would be 2.25% of the total investment. That's not usually going to big enough to sway an investment decision given much larger factors. One reason is that the capital investment is risk adjusted using a hurdle rate which could be 19%. What kind of a return would you get if you just invested that 10m into bonds? This is usually subtracted and make the tax savings even less significant.

Note that the 35% rate is misleading. The effective average rate is closer to 20%...buy maintaining deductions that's even going to go way down which is why the deficit will explode.

The bottom line is that investment ideas are either good or bad. A good idea isn't going to be shelved because of a few percentage points...most companies either have the cash or can leverage given the low interest rates.

[spence]

Originally Posted by Jim in CT

And what are most businesses? Small or large?

Depends on how do you define it. Yes, the vast majority of businesses in the US are small, for the most part they are non-employee, not incorporated and don't pay corporate taxes.

I'm not sure what is going to be in the final bill but earlier this month it was looking like the GOP wanted to increase taxes on most small business profits dramatically while cutting rates on the larger classes dramatically. Not sure how this helps employment. It does help wall street.

Hey, maybe that's why markets went up on the news ya THINK?

*Edit - it looks like the Senate bill that passed this morning did include provisions to help small businesses. It was added at the very last second to influence the final two votes. This should scare the heck out of everyone. It wasn't an oversight.

[Jim in CT]

Originally Posted by spence

Your wit is dizzying.


In simple terms, if you were to make a 10m capital investment that hoped to net 1.5m in profit, the proposed difference in marginal corporate taxes would be 2.25% of the total investment. That's not usually going to big enough to sway an investment decision given much larger factors. One reason is that the capital investment is risk adjusted using a hurdle rate which could be 19%. What kind of a return would you get if you just invested that 10m into bonds? This is usually subtracted and make the tax savings even less significant.

Note that the 35% rate is misleading. The effective average rate is closer to 20%...buy maintaining deductions that's even going to go way down which is why the deficit will explode.

The bottom line is that investment ideas are either good or bad. A good idea isn't going to be shelved because of a few percentage points...most companies either have the cash or can leverage given the low interest rates.

If the true effective rate is 20%, then cutting the published rate to 20 costs us nothing, and thus the liberals can’t say it’s a gimmick to help the rich. Can’t have it both ways, sorry.
Posted from my iPhone/Mobile device

[Jim in CT]

Spence, on a 10m investment in our example, you said the income needs to be 1.5m for it to return 15%. That’s the net. The gross income on that investment needs to be 2.31m at a tax rate of 35%. At a rate of 20%, the gross return needs to be 1.875m, 20% less. Not a trivial shift in the cost benefit math.
Posted from my iPhone/Mobile device

[Got Stripers]

If I ran my personal finances like this government, I'd be filing bankruptcy as often as Trump has. The deficit is getting out of control.

[JohnR]

Originally Posted by Got Stripers

If I ran my personal finances like this government, I'd be filing bankruptcy as often as Trump has. The deficit is getting out of control.

Yes - something many have been harping about for a decade but were told were racists.