Friday, January 29, 2016

General Electric Leaves Connecticut


In January 2012 I put up a post about protestors in Connecticut who complained that General Electric (GE) did not pay enough taxes. At that time I did not predict that GE would leave Connecticut but in subsequent posts I did warn that if politicians listened to these protests, they might cause the giant company to leave its headquarters in the town of Fairfield, and kill the goose laying the golden eggs. 

Sure enough, after last year's Democrat budget threatened companies like GE with more tax increases and regulations, the giant company decided after Christmas to pull up stakes in Connecticut and move to downtown Boston in nearby Massachusetts. The governor of Massachusetts and Mayor of Boston welcomed GE with open arms and huge financial incentives. Ironically, it was Senator Elizabeth Warren of Massachusetts who initially spearheaded the attack on GE four years ago by claiming erroneously that the company paid no Federal taxes. Perhaps  the Governor of Massachusetts and the Mayor of Boston should now explain the economic facts of life to Senator Warren.

Once GE moves, Connecticut politicians who sought to increase GE's corporate taxes will find that GE and its employees will no longer be paying income, real estate, or sales taxes to the State of Connecticut. Those politicians who sought to require that GE increase the minimum wage by 50% for its few minimum wage employees will find that those workers will no longer have jobs. My special-needs grandson is one of those workers who in addition to his minimum wage found a safe and secure workplace with free breakfast and lunch at the GE headquarters.

Incredibly, the Governor of Connecticut or his cronies in the Legislature refuse to take any of the blame for this economic disaster. In England, there would have been a parliamentary vote of no-confidence and the Prime Minister would have resigned. Not so long ago in Japan a disgraced politician would have committed "hari kari". 

All Governor Malloy can do in Connecticut is dismiss the political hack he appointed a year ago to run the hopelessly mis-managed Department of Motor Vehicles. Is it any wonder that executives at GE balked at paying taxes to support the legion of political cronies that the Governor has appointed over the past few years, or the incredibly generous pensions guaranteed to powerful public service union members.

Below find the original General Electric post that appeared on January 7, 2012. 

Last year in Fairfield, Connecticut protestors  denounced corporate giant GE for its failure to pay corporate federal tax .  GE’s corporate headquarters are in Fairfield, and the protests drew much attention from newspaper cartoons and stories. I can see why it was hard for GE to defend itself against these charges that put it in such a bad light. It has already been stigmatized as a big bad heartless selfish business giant.

I am not an employee or representative of GE, and the company does not need me to defend it, but I would like to put the issue in a different light. In my opinion, this GE flap was a classic case of trying to kill the goose that laid the golden egg.
GE is perhaps the largest landowner in the town of Fairfield and as such pays a huge amount of real estate taxes to the town. It is also one of the largest employers in the state of Connecticut. Its employees all pay their share of real estate tax on their own homes. Even if they are renters, part of their rent goes to pay their landlord’s real estate taxes.

In addition to real estate taxes, all GE employees from CEO Geoffrey Immelt on down pay their share of Federal and State Income tax. For example, most GE employees will pay between 30 and 40 percent of their income in federal and state income tax.

The company and its employees must also pay about 13 percent of salary into Social Security. That tax is sent to Washington where instead of going into the proverbial “lock box” it must immediately be lent to the debt-ridden government in order to pay its current expenses.
It is not hard to calculate that more than 50% of the income of each GE employee goes to pay federal, state, and local taxes. On top of that, consider that all these employees pay sales tax on practically every item they purchase. Although hidden from view, our state gasoline tax must add about a dollar to the purchase of every gallon of gas.

Despite all these taxes, demonstrators still protest about the failure of GE to pay corporate taxes. Don’t they know that a corporate income tax is really a tax on consumers? Corporations merely act as tax collectors for the government. The buyers or consumers of their goods and services are the ones who actually pay the tax. For example, whenever the State of Connecticut raises the tax on cigarettes, the price of a pack goes up accordingly. The tax is always passed on to the consumer. If GE hadn’t found a way to avoid the corporate tax, the price of every light bulb, refrigerator, and auto loan would have been that much higher.

I must admit that I own 500 shares of GE stock in my retirement plan. The value of the shares has rebounded since the market hit bottom in 2008, but the current price of about $16 a share is far below its $50 value of 10 years ago. It pays a small dividend of about 2% that is also taxed by both the Federal and State governments.*

I guess that it was mainly the enormous losses that GE’s credit arm suffered in the recent financial meltdown that offset the company’s current gains and allowed it to avoid the corporate tax. I would also suspect that the company wisely took advantage of government tax credits designed to stimulate the search for alternative energy sources. I believe that GE is a very big player in the solar energy field. As a stockholder and a citizen I would rather see GE invest in energy for the future, and bonus employees who contribute to the effort, than send the money to Washington.

*Note: Since the original post, I have sold my GE stock.


Monday, January 18, 2016

Income Inequality 1950-2016

William F. Buckley, Jr.

Income inequality is going to be one of the top issues in the 2016 Presidential campaign. Bernie Sanders, the avowed Socialist Senator from Vermont, has made it the key issue in his effort to upset front-runner Hillary Clinton in the Democrat nomination race. Sanders seemed like a joke at first but now he is running Clinton hard in the polls for both the Iowa and New Hampshire primaries. Inevitably, Clinton will have to embrace the issue in order to appeal to the so-called Progressive wing of her party. At the same time, she will have to hide her own considerable wealth as well as the wealth of her fat-cat supporters in the Democrat party.

For many, income inequality is a new issue that has taken root because of the increasing gap between the rich and poor in the past few years. However, the issue goes back in time to an earlier period in American history. The origins of the issue have more to do with ideology than with any current economic statistics.

While cleaning out my basement the other day I found a copy of God and Man at Yale, the book that first brought William F. Buckley Jr., the famed Conservative commentator, to the Nation’s attention back in 1951. The book was subtitled, “The Superstitions of ‘Academic Freedom’”, and bore the following dedication: “FOR GOD, FOR COUNTRY, AND FOR YALE, in that order.”

I have owned the book for years but have never gotten around to reading it until now. Buckley had spent two years in the Army before entering Yale in 1946.  He must have had an outstanding college career before graduating in 1950. For example, one year he held the prestigious position of editor of the Yale Daily News.  He graduated in 1950 and it is obvious from his dedication that he loved his Alma Mater. Nevertheless, he found some disturbing trends and chose to write about them in “God and Man..."

Here I would just like to concentrate on his lengthy chapter devoted to the teaching of economics at Yale, a chapter primarily analyzing the textbooks chosen for the basic introductory course that was taken by a large number of students. All four of the textbooks believed that the biggest problem facing America in 1950 was “income inequality”. That’s right! Income Inequality or, as he titled it, THE UNFAIR DISTRIBUTION OF INCOME. Why was income inequality such a big issue back in 1950?

I believe the answer can be found in the background of the economists who had written the textbooks. If Buckley was about 25 in 1950, then I would guess the authors of the textbooks were born before the First World War and grew up in the era marked by the subsequent Communist Revolution in Russia and the worldwide Great Depression of the 1930s. Paul Samuelson, for example, was born in 1915 and his textbook, Economics, an Introductory Analysis, was first published in 1948 and soon became one of the best-selling textbooks of all time. Samuelson’s book is one of the four reviewed by Buckley.

Samuelson and the others all believed that the experiment begun in Russia in 1917 was the wave of the future, and that the Great Depression in American had shown the inadequacies of the traditional system of free or private enterprise in dealing with modern economic issues.
In the chapter on economics Buckley cited a comparison between the Soviet and American systems from one of these textbooks. The italics are Buckley’s.

compare “ the situation in our economy with that in a socialist economy, such as the Russian or Czechoslovakian. In the Russian economy the decision to produce, let us say 20 million tons of pig iron, is made by the Central Planning board, which presumably takes into account the needs and resources of the Russian economy before it comes to a decision. The same board determines how many automobiles to produce, how many pairs of socks to manufacture, and how many acres to put into wheat. In our economy, no such institution exists. No one group or person determines how much steel to produce, how many tractors to make, or how much land to plant in cotton…. In a socialist economy, important questions of output, price, employment, and so on are planned collectively. In a capitalistic economy, these decisions are made separately by individual firms…. How does the business firm determine how much it will produce? The answer to this question is to be found in the fact that the business firm in this country is privately owned…. The determination of how much to produce, or of the price to be charged for the product, is made with one interest in mind—that of the owner. The owner’s interest is to secure as large a profit as possible. [Pp.65-66]

It is the profit motive that is the root of all evil. In the words of one text, “the state, being free from the profit motive and having the power of compulsion, is able to make its revenue fit its expenditures (within limits) rather than the reverse.” [p. 67] 

Of course, profit motive brings up the image of the greedy businessman as often portrayed in popular movies of the 1930s or in the figure of Mr. Monopoly from the very popular board game. Samuelson’s text disclaimed the image but still used it.

In this connection, it is important to understand just what a monopolist is. He is not indeed,“…a fat, greedy man with a big moustache and cigar who goes around violating the law. If he were, we could put him in jail. He is anyone important enough to affect the prices of the things that he sells and buys. To some degree that means almost every businessman”…[75]

In 1950 all four textbook authors were convinced that the experiment going on in Russia was the wave of the future and that the private enterprises system was a thing of the past that had been forever discredited by the Great Depression. The textbooks, and the professors who chose them, were all advocates of central planning, a large central government, extremely high progressive income tax rates, and confiscatory inheritance tax rates.

Writing in 1950 I don’t suppose that the young Buckley or the textbook authors could have foreseen the great economic boom that would take place in the USA in the next few decades, a boom that not only raised millions out of poverty, but also created the wealthiest country in the history of the world. Neither could they imagine that during the same period the Soviet economy would finally be exposed as a rotten failure. At the same time as we were beginning to learn about Stalin’s brutal oppression, we were learning of people lining up at Russian markets for hours to buy inferior or even non-existent necessities.

The Soviet Union had eliminated income inequality by making everyone poor. Years later, we would learn that they had actually created a new aristocracy of Communist party members and their friends who lorded it over their subjects. So much for central planning and the elimination of the profit motive.

In one of history’s ironies Paul Samuelson made a fortune with his economics textbook, In true capitalist fashion he contrived to bring out a new edition every couple of years so that students could not buy older used texts. No central board or agency prevented him or his publisher from printing and selling as many copies as the market would bear. He lived a long life and received practically every award a scholar could get. In 1996, he was awarded the National Medal of Science by President Bill Clinton, another Yale graduate who now makes millions by giving speeches to fat cats all over the world while his wife complains of income inequality.


Wednesday, January 6, 2016

Magi from the East

Epiphany is a Greek word which means manifestation or appearance.  In Christian tradition the story of the "magi from the east" has been seen as a sign of the manifestation of the Lord Jesus to all nations. It is usually celebrated on January 6, the twelfth day of Christmas. Although not such a big deal in the USA, the Feast of the Epiphany rivals Christmas in Europe and Latin America. Today, the schools are closed in my neighboring town of Bridgeport because of the large Hispanic population.

The gospel account of the Magi from St. Matthew is skimpy. It only tells us that "magi from the east" followed the star "to the place where the child was." It doesn't say that there were three of them, or that they were kings. But  tradition and art have added these familiar features to the story.  

There are three kings probably because of the three gifts--gold, frankincense, and myrrh--which are associated with royalty. In art one of the Kings is usually portrayed as an old man, another is middle aged, while the third is young and beardless. They symbolize all the ages of mankind. Tradition called them wise men because the word magi came to mean "magician", or one familiar with the secrets and mysteries of nature. It is common to think of them as astronomers or astrologers because of the famous star that they followed to Bethlehem.

Although legends have embellished the story of the Magi, there is an historical core to their story. There were, after all, "magi" in the East. The members of the ruling priestly class of the Persian empire to the east of Palestine had for centuries been called "magi." They would have been familiar with the Hebrew scriptures and prophecies because so many Jews had emigrated to Persia in the centuries before Christ. Their journey to Bethlehem would have been over a thousand miles but it would have followed established and frequently traveled trade routes.

The reaction of King Herod to their news certainly fits what history has told us about that cruel despot. In those days it was common for rulers to kill anyone who might be a potential threat to their crown. Herod murdered his favorite wife--he had ten--and five of his own sons when he suspected that they were plotting against him. The slaughter of the Innocents which St. Matthew describes a little later in this chapter is certainly in line with Herod's character.

What is the importance of the visit of the Magi? Why is the Feast of the Epiphany one of the greatest in the Christian calendar?

We know that after the Resurrection of Jesus the first converts to Christianity, even the Apostles themselves, had difficulty in understanding that the mission of Jesus was not only to the Jews. There was a great debate in the early Church where some argued that Gentiles had to convert to Judaism before they could be Christian. In the epistles of St. Paul we see that this issue centered around the question of circumcision, that particular rite which signified one's membership in the nation of Israel.

In fact, the very first Council of the Church was held at Jerusalem precisely to discuss this very issue. There St. Paul, inspired by his own personal encounter with the risen Jesus, argued that the message of the Christ was for all mankind. As he said in the reading Letter to the Ephesians,

            it has now been revealed
            to His holy apostles and prophets by the Spirit:
            that the Gentiles are coheirs, members of the same body,
            and copartners in the promise in Christ Jesus...

For Paul the Messiah promised to the Jews was to be a light to all nations. That first Council agreed with Paul especially after the Apostles Peter and James came around.  Perhaps it is only after the question had been decided that the early Christians began to re-examine the words and life of Jesus for new meaning.

He came to call sinners. He cured the Roman centurion's servant. The Sermon on the Mount did not mention race, creed, or color. He praised the Good Samaritan and insisted that the foreigner was more a neighbor to the beaten Jewish traveler than his countrymen who passed him by on the road to Jericho.

They even discovered an incident at the very beginning of the earthly life of Jesus that indicated that He had come as a light to all the nations. The "Magi" had come from the East to bring Him gifts and do Him homage. On the other hand, the despised ruler of the Jews had only sought to put Him to death. Apparently, Herod and his advisers couldn't even see the star that led the "Magi" to the child.

The Christmas season comes to an end with Epiphany. The twelve days of Christmas are completed. A few years ago I found a wonderful Christmas card which said simply,

            Wise men still seek Him.