themarketswork

a common sense approach to a liberal world

Abolish the Corporate Tax

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President-Elect Trump has proposed lowering the Corporate Tax Rate from 35% to 15%. And that’s a good idea – but it doesn’t go far enough. The Corporate Tax Rate should really be lowered to Zero.

Some quick facts: The United States’ 39% marginal corporate tax rate (35% federal and 4% average state and local) is the third highest in the world. It is the highest of the 34 industrialized nation members of the OECD – and it compares poorly with Europe’s average tax rate of 19% (26% weighted by GDP).

Why do we have differing corporate and individual taxation systems in the first place?

Our nation’s tax system evolved in fits and starts with various taxes being implemented and then repealed – some ruled unconstitutional. Our modern tax era began in 1909 – in response to rising political pressure to tax the rich – when Congress enacted an excise tax on corporations at the urging of President William Howard Taft. In a concurrent move, President Taft proposed the 16th Amendment to establish a personal income tax. The excise tax on corporations did not require a constitutional amendment and was originally intended to be a temporary measure until the passage of the 16th Amendment which occurred in 1913. Like all things government, legislation once enacted does not die and so the two concurrent tax systems – corporate and individual were born. And they have been creating inefficiencies and needless complexities for our nation ever since.Continue Reading

Trump’s Deregulation Gift

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The United States’ 39% marginal corporate tax rate is the third highest in the world and the highest of the 34 industrialized nation members of the OECD.

Regulatory burdens placed on business under the Obama Administration have become staggering – and even more costly. Here are some data points directly from the Competitive Enterprise Institute:

  • Federal regulation amounts to nearly $15,000 per U.S. household each year.
  • In 2015, 114 laws were enacted by Congress during the calendar year, while 3,410 rules were issued by agencies. Thus, 30 rules were issued for every law enacted last year.
  • Many Americans complain about taxes, but regulatory compliance costs exceed the $1.82 trillion that the IRS is expected to collect in both individual and corporate income taxes from 2015.
  • Some 60 federal departments, agencies, and commissions have 3,297 regulations in development at various stages in the pipeline. The top five federal rule-making agencies account for 41 percent of all federal regulations. These are the Departments of the Treasury, Commerce, Interior, Health and Human Services, and Transportation.
  • The 2016 Federal Register (the daily depository of rules and regulations) currently contains 81,640 pages, the highest page count in its history – and is still climbing. Obama also held the prior record, 81,405 pages in 2010. The 80,000 page mark has been passed in only three previous years (2010, 2011, 2015).
  • Of the ten all-time-highest Federal Register total page counts, seven occurred under President Obama.

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The Euro’s Failings

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I remember when the European Union, and the creation of the Euro, was being discussed and formulated. I was sitting in an economics class in college.

The European Union would be the culmination of a series of efforts to unify Western Europe – starting in 1951 with the creation of the European Coal and Steel Community (ECSC) and later, the 1957 creation of the European Economic Community (EEC) – which removed many barriers of trade between member nations. Over time, the EEC added additional European nations and expanded its influence and scale. Fast forward to 1987 and the creation of the Single European Act (SEA) which strengthened both legal and foreign policy influence and concentrated the decision-making power of the EEC. It also established a timetable of 1992 for the completion of a common market. And thus, the Maastricht Treaty was signed on February 7, 1992 and formally created the European Union (EU) – it also called for a common currency – the yet to be named Euro.Continue Reading

Carrot not Stick – Fixing our Economy

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“Underlying most arguments against the free market is a lack of belief in freedom itself.” – Milton Friedman

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” – President Ronald Reagan

“I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” – Milton Friedman

Yesterday I wrote on Why I Support the Carrier Deal – an unusual response from a free markets proponent.

I liked the Carrier Deal because it highlighted the much larger story that lay hidden behind the headlines – as is often the case.

The Carrier deal unto itself was actually small news and would likely have gone unnoticed in differing times. The real story is why United Technologies CEO Greg Hayes came and listened. He came to hear President-Elect Trump’s broader blueprint for our future. He came to hear about plans to reduce taxes, to remove regulations – plans and policies to make the United States a place that attracts, rather than repels, business activity. And that is the real story.Continue Reading

Why I Support the Carrier Deal

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President-Elect Trump’s decision to push Carrier to keep 1,000 jobs in the United States was hailed by some and condemned by others. The left and many fiscal conservatives on the right condemned the act as a $7 million payoff to Carrier, a shakedown, a poor deal, a ransom, soak the taxpayer. I understood the consternation of the fiscal conservatives as I am one of them. I found the uproar from the left a bit amusing given Obama’s $800 million American Recovery and Reinvestment Act and its failure to never once produce GDP growth in excess of 3% over his eight years – a dubious record never before accomplished in this country – with or without stimulus. The uproar on the left may have had a bit to do with who did the negotiating and who it was that benefited from the deal. Ironic, given that the Democratic Party was once upon a time the party of the American worker.

Personally, I am in favor of free markets, fiscally conservative and firmly believe in Supply Side Economics – and yet, I supported Trump’s decision. Why?Continue Reading

Birth of an Administration

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Our nation’s best and brightest do not work in Washington.

Our best and brightest work in the private sector. They are on Wall Street and in the financial markets. They are CEO’s of companies. They are running hedge funds. They have created successful start-ups. They are collectors and managers of capital – both financial and human. They have no attraction for a traditional Washington and its hyperactive politics. They can deploy their skills far more successfully, and with far greater reward, in the free and open markets.

And yet they suddenly seem to be gravitating to Trump Tower – and that is of enormous benefit to our country’s future.

What do these folks have in common? They are all in jobs typically vilified by the left. They do not work in government. They are some of the smartest and most capable individuals this nation has to offer. They are driven.

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Dodd-Frank Must Go – or Getting Out of Dodd

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“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” – Frederic Bastiat

“The Law of Unintended Consequences is a fact of life. Humans act when acted upon and generally in their own interest. People and markets adjust their behavior – often in ways not predicted or planned for.” – themarketswork

President Obama signed the Dodd-Frank legislation into law, all 2,300 pages of it, in 2010. The legislation was in response to the financial crisis of 2008 and was intended to decrease risks to our financial system and “promote financial stability”. Obama told the public Dodd-Frank would “lift our economy”. He also told us that the financial crisis of ’08 was the result of deregulation.

Sadly, the exact opposite was true. The financial crisis of ’08 – like so many before it – was the result of regulations – bad ones – implemented by Washington over many years.Continue Reading

The Renaissance of the Right

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The full enormity of what is happening within the GOP and Washington is just beginning to sink in, the possibilities just beginning to take hold.

A glimmer into what’s coming was revealed last night when Newt Gingrich, in talking about what position he might want in a Trump Administration, calmly and matter-of-factly uttered these words;

“I want to be the general planner, looking out over the next eight years, and trying to design how we fundamentally reshape the federal government”

“and that’s a very broad job. The closest analogy probably would be Harry Hopkins and the work he did for Franklin Delano Roosevelt”.

And that was the moment I began to truly grasp how enormously fundamental this structural change will be.Continue Reading

Market Pricing

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I woke up this morning to the “stunning” news that Trump was only 4 points behind Hillary according to a new Washington Post-ABC News poll. As an aside the WSJ’s web page headline reads Trump trails Hillary by 11 using a different – and possibly earlier poll – go figure. Either way, I didn’t find the news all that stunning.

Allow me to explain. For the entire campaign, the media has been reporting on Trump. Digging up whatever they could. And then came the news of Trump’s comments and the entire firestorm that ensued. In my personal opinion the media ended up far more frothy and lathered about this issue than did the general public – but that’s not the direct point I will be making – although it is connected.Continue Reading

The Most Frequently Asked Question

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When people find out what I did for a living I generally ready myself for The Most Frequently Asked Question – “Do you have any stock tips” (or some variant thereof).

My answer is boring. Really boring.

My first response is a question – how much do you have saved up in liquid assets – cash, money markets, savings accounts – for emergencies. Do you have enough liquidity to pay all your bills (rent, groceries, insurance, utilities, etc.) for 6-12 months. “Yes” means we can keep talking. “No” means go save some money. Now.

Assuming the answer was yes we then move on to a spirited discussion of Index Funds. This generally meets with some disappointment.Continue Reading