Friday, August 28, 2015

Corporate Taxes


Some people like to complain that large corporations like General Electric, which currently has its corporate headquarters in my town of Fairfield, Connecticut do not pay taxes. In particular, the charge against GE seems to stem from Elizabeth Warren’s successful run for the Senate a couple of years ago. In her campaign Warren claimed that GE paid zero taxes.

Actually, Warren’s claim was shown to be sheer demagogic misinformation but the myth lingers on today. Sometimes, this kind of political hot air can have serious consequences. Apparently, many Democrat politicians believe that companies like GE are cash cows that can be milked forever.

Last June the Democrat Governor of Connecticut and the Democrat controlled Legislature sought to deal with the State’s huge budget deficit by adding new taxes to large corporations like GE with headquarters in Connecticut. It appears that the strategy has backfired since a number of other states have come courting GE with very attractive offers.

If GE paid no taxes, why would those states, like blue state New York, offer rich incentives to entice them to leave Connecticut? The truth is that GE and other large corporations pay tons of taxes although their corporate tax returns are not usually in the public domain. Here’s how it works.

Any business whether a large corporation or a small sole proprietor is allowed to subtract business expenses from its gross revenues before paying a business or corporate income tax. For most of my career I was a self-employed financial advisor and every year I had to file a Schedule C along with my personal income tax return. At the top of Schedule C I would have to list my total income or revenue for the year, but then I could subtract my business expenses from the gross income to come up with my net taxable income. These expenses included salaries paid to employees other than myself, office rent, phone costs, business travel expenses, and purchases of office supplies from computers to paper.

 A large corporation like GE has all these expenses and more. Salaries, from the CEO down to the minimum wage mail clerk, are deductible. So, when the CEO gets a bonus, that reduces the gross income for corporate tax purposes, but so too does an increase in the minimum wage for low salaried employees. When the CEO and the mail clerk get their salaries, they are subject to both Federal and State personal income taxes.

GE can also deduct the real estate taxes it pays to the town of Fairfield. It is the largest taxpayer on the town’s grand list. It must pay sales tax on all purchases of equipment and supplies to the State of Connecticut. It would be a catastrophe for Fairfield and Connecticut if GE and its 3000 corporate employees left the State for a more business friendly environment.

It is true that corporations can claim expenses against income that most individuals cannot. A corporation can deduct the cost of its benefits package, including the medical insurance that is often provided to employees at low cost. It can deduct the cost of major acquisitions or at least claim depreciation expenses over time.

After all deductions are totaled, they are subtracted from gross revenues and the balance or profit is subject to corporate income tax. The corporate tax must be paid before shareholders can receive any dividends. So, the profit is taxed, and then the part of it paid in dividends is taxed again to the shareholders as ordinary income. This is why some people think that the taxation of corporate dividends is unfair double taxation.

What is left of the annual profit after taxes and dividends is then retained in the corporation for various purposes although there are limits on the amount of retained earnings. For this reason Warren Buffet’s Berkshire Hathaway Company never pays dividends. Rather than generating taxable income for his shareholders, Buffet prefers to just make new acquisitions. If the shareholders need the money, they can just sell some shares.

Finally, if a corporation has a bad year or incurs unexpected huge expenses due to things like new taxes, or government mandates, there may be little profit to tax. Many companies saw this happen in 2008 with the onset of what is now called the Great Recession. Nevertheless, it is estimated that in 2010 GE paid about a Billion dollars in corporate taxes, and almost 3 Billion in 2011.

Governor Malloy of Connecticut seems to have seen the light and has since put together a package for GE but it may turn out to be too little and too late. Instead of milking the cow, the Democrats may have killed the goose that laid the golden egg.

If GE leaves Connecticut, there will be no profits to tax. If GE leaves the State, the results would be disastrous not so much for GE stockholders, executives and other fat cats, but mainly for the thousands of ordinary people whose incomes are dependent on GE.


Thursday, August 20, 2015

No Trump on Immigration


Recently I had a conversation with a friend who has a long acquaintance with Latin America, especially Mexico. Years ago, he did post graduate work in Mexico where he met his future wife. Eventually, he went into the commercial insurance business and spent most of his career in Latin America.

He retired a couple of years ago and told me that he would never go back to Mexico despite his love for the country and its people. Even though his wife still has family near Mexico City, they are afraid to return because it has become too dangerous.

He described a country terrorized by drug gangs in the same way that ISIS is terrorizing the people of Iraq and Syria. Unless you join the drug gangs or cooperate with them, you and your family will be brutally persecuted. He believes that the people who we call illegal immigrants should actually be considered refugees fleeing to America for their lives.

From his perspective when people like Donald Trump rail against illegal immigrants, and talk about deporting 11000000 people back to Mexico, they are really telling these people to go to hell.

Put aside for a moment the impractically of searching out and rounding up 11 Million people (where did Trump get that number?) and then shipping them back to Mexico, just consider how contrary this is to all that America used to stand for.

Most of us are descendants of immigrants who for one reason or another fled their homeland to find peace and opportunity for their families in America. Most of our forebears would have been illegal if the unjust immigration laws of the 1920s, which were the product of KKK like bigotry and prejudice, had been in existence when they came.

In the 1920’s racists and advocates of ethnic purity decided to stem the flow of immigration into this country. They wanted no more undesirables, especially if they practiced alien religions like Catholicism and Judaism. New immigration laws made during the 1920s made a mockery of the Statue of Liberty and the famous poem written by Emma Lazarus.

"Keep, ancient lands, your storied pomp!" cries she 
With silent lips.

 "Give me your tired, your poor,
 Your huddled masses yearning to breathe free,

 The wretched refuse of your teeming shore. 
Send these, the homeless, tempest-tossed to me,
 I lift my lamp beside the golden door!"

Why does Donald Trump advocate such a cruel and inhumane policy? Why do he and others insist on enforcing laws that were the product of racism and religious bigotry?

If the law was different all of these immigrants could have entered the country peacefully without danger to life and limb and without employing criminals to guide them. I’m not saying we should be stupid or impractical. They should have to apply for citizenship and meet certain criteria. They should not immediately enjoy all the benefits of citizenship, for citizenship in this country should still be regarded as a great privilege.

Finally, opening up our doors again will provide great benefits. It is not just a question of who will cut our lawns, remove our garbage, or paint our homes, but how will we compete with China’s huge population with only 300 million people? Who will buy up our unused housing if our population continues to decline? Don’t immigrants now rent American apartments, drive American cars, and buy American products in American stores?

Finally, the pressure on those states that now bear the brunt of illegal immigration will be alleviated. The millions of dollars now spent on controlling the Mexican border can be allocated to other purposes.

For many reasons we need these immigrants. We need them more than we need Donald Trump. ###

Saturday, August 8, 2015

Climate Change Skeptic


Something about the hot weather in August seems to bring the Climate Change fanatics out of the woodwork. Today, the Connecticut Post, my local newspaper, featured a climate change op-ed on its editorial page entitled, “End coal-caused injustice in Bridgeport.” Predictably, it was written by two leaders of Connecticut environmental organizations.

I guess you could call me a climate change denier, but I prefer the appellation, “climate change skeptic”. I am not a scientist but I know enough about science to be wary of the alarms sounded by such organizations. Just three years ago on another hot August day I wrote a post on Global Warming after the paper carried a number of articles predicting impending doom.

The very fact that in three short years the term “Global Warming” has been dropped in favor of the more general “Climate Change” should be enough to warrant skepticism. Why the change? Was it the absence of any signs of warming in the past few decades, or was it the chicanery of a few years ago when global warming scientists tried to prevent the publication of contrary views?

Another reason for skepticism is the fact that climate change alarmists are turning to other causes to rally support. The claim is now that fossil fuels and coal fired power plants have a greater impact on the poor (“people of color”) living in cities like nearby Bridgeport.  They write that such “communities carry a disproportionate share of exposure to harmful and toxic power plant emissions…”

It is true that there has been a large coal fired power plant in Bridgeport for as long as I can remember but why its emissions should effect the urban poor more than the more prosperous towns right next to Bridgeport  is hard to prove. After all, only a couple of years ago Connecticut Democratic Governor Dannel Malloy, a darling of the environmentalists, claimed that closing the Bridgeport power plant would have little effect on the local environment. He blamed states in the South and Midwest for sending their wind-driven emissions our way. He claimed that Connecticut was tired of serving as the “tailpipe of America.” Malloy argued,
“For far too long, prevailing wind patterns have carried pollution generated elsewhere across our borders and into our lives and lungs.” If we eliminated all our home grown air pollution, the air in parts of Connecticut would still be dangerously polluted and fail to meet federal standards—because of the inter-state transport of pollution.”
Left unsaid by Malloy and the authors of the CT Post op-ed is the fact that most pollution created by the Bridgeport plant is carried further east by the prevailing winds.

Another reason for skepticism is the classification of carbon dioxide as a pollutant.  Carbon dioxide is a naturally occurring gas that is essential to life on earth. Humans and other animals breathe in oxygen and exhale carbon dioxide. Trees and other plants take in carbon dioxide, process it, and then exhale oxygen. It is considered to be one of the so-called greenhouse gases but since water vapor makes up over 95% of the greenhouse gases, why are we so alarmed about carbon dioxide? Actually, carbon dioxide is necessary for plants to grow and produce the food the world’s population needs.

Connecticut’s air and water are probably cleaner now than they have been since the coal-fired power plant was built. The authors claim the plant emitted 2 million pounds of sulphur dioxide last year. That noxious chemical is poisonous but a quick google check showed that sulphur dioxide emissions were down over 40% in this country between 1970 and 1999. I can only guess that the total emissions are much lower today. Even so, most sulphur dioxide emissions are caused by volcanic activity. What are we supposed to do about that?

My final reason for skepticism is that environmentalists usually only look at one side of the coin. They never consider the positive impact of the coal-fired power plant on the people, rich and poor, of Bridgeport and the surrounding towns in Connecticut.

Where were those people supposed to get their electricity for the past 50 years? Even today solar and wind are a poor substitute in Connecticut for the power needs of the population. Electricity is a basic human need in our society and it is remarkably inexpensive in Connecticut. What would life had been like for the “communities of color” in Bridgeport over the past years without the coal fired electricity generating plant? A couple of years ago a winter storm practically brought the whole state to its knees when power went out for just a few days.

Ultimately, I am skeptical not only about climate change but also about man’s ability to do anything about it. Even the Pope in his new encyclical mentioned solar activity as a driver of climate change. 

Still, for true believers I copy these suggestions from my post of three years ago.

1. Stop using hair dryers and let your hair dry naturally. Young environmentally conscious ladies could just brush their hair dry or even cut their hair short.
2. Stop using clothes dryers. Hang your clothes out on the line and dry them with good old solar power.
3. Stop heating your swimming pools. Let the sun do the work. What’s wrong with a nice brisk dip on a hot day? I’ll think of changing my views when, Al Gore, the high priest of global warming, stops heating his huge pool. He uses more energy on his huge mansion in a day than most of us use in a year.
5. Activists could stop using their Iphones and Ipads. Millions of these devices have to be re-charged every day.
4. State supported universities, most of whose scientists are global warming believers, could go back to playing their football games on Saturday afternoon rather then under the lights at night. Pro football and Major League baseball could follow suit.

5. Even the President could take the lead by using Amtrak once in awhile rather than the gas-guzzling Air Force One. I would guess that he has taken more trips during his brief stay in office than all previous Presidents combined.


Saturday, August 1, 2015

Beethoven: Ode to Joy

This August marks the seventieth anniversary of the end of World War II after the dropping of the Atomic Bomb on the Japanese cities of Hiroshima and Nagasaki. Commentators are still debating the legitimacy of the decision to drop the bombs but no one questions the horrible devastation that was visited on the population of the two cities.

Thankfully over the last seventy years , despite the Cold War, Korea, Vietnam and the apparently unending conflicts in the Middle East, the world has avoided another nuclear catastrophe. Nevertheless, despite a shrinkage of the large nuclear arsenals of the USA and Russia, other nations have joined the list of those possessing nuclear weapons.

I do not want to comment on the Hiroshima/Nagasaki decision. Others, more informed than I, have long debated the pros and cons. Nor do I want to discuss the pending deal with Iran since no one as yet has anywhere near the information that the President and his advisors have.

PBS recently ran a documentary on the bombing of Hiroshima. In the re-creation a lone B-29 bomber is seen flying over Hiroshima, and in the next minute almost 100000 people are killed, maimed, or disfigured for life. They were people like us. Oddly enough, it made me think of Beethoven’s great symphony #9 with its magnificent choral ending, the Ode to Joy, based on the poem by Schiller.

The notes on my album claimed that Beethoven had considered putting the ode to Joy and Brotherhood to music for over twenty years.
We are all familiar with the opening strains in German.
Freude, schoner Gotterfunken.Tochter aus Elysium.Wir betreten, feuertrunken,Himmlische, dein Heiligthum.

Here is a full English translation of the text from this greatest of symphonies. It culminates in an affirmation of the brotherhood of man under one Creator.

Joy, thou gleaming spark divine,
Daughter of Elysium.
Drunk with ardor, we draw near,
Goddess, to your shrine.
Thy magic unites again
What custom sternly drew apart.
All mankind become brothers
Beneath thy gentle hovering wing.

He whose happy fortune grants him
Friend to have and friend to be.
Who has won a noble woman,
Let him join in our rejoicing!
Yes—even if it were one heart only
Beating for him in the world!
But if he has never known this,
Let him weeping steal from out our ranks.

Joy is drawn by every creature
From the breast of Nature.
All men good and all men evil
Walk upon her rose strewn path.
Kisses gave she and the ripe grape,
A good friend, trusty to the last.
Even the worm can feel pleasure,
And the Seraph stands before God.

Glad as suns that He hurtles
Through the vast spaces of heaven.
Pursue your pathway, brothers.
Be joyful as a hero in victory.
Millions, be you embraced!
For the universe, this kiss!
Brothers—above the canopy of stars
A loving Father surely dwells.
Millions, do you fall upon your knees?
Do you sense the Creator, world?
Seek him above the canopy of stars!
Surely He dwells above the stars.
Click here for a five minute flashmob doing the end of the chorale or just go to the video below.