Tuesday, March 25, 2014

Reddit Wins Economics

Reddit user DWWO makes the following point about corporate tax and what is essentially "job creation". I'm gonna just reprint the whole thing right here.

As a business creator / owner (I've started or been a partner in 6 start-ups and been an exec in 3 medium-large companies, some I know you've heard of), here are some points in response:
  • I never base wages on my corporate tax bracket. In fact, taxes are taken into account in primarily two ways (see below), and never influence hiring, operations, legal decisions, or growth (which is almost everything from expanding office space to staff, except for capital expenses, see below again). The only time taxes have ever, and I mean ever, been in any conversation is at the end of the year. Never has anyone in any company ever said, let's do or don't do X because of taxes, except at the end of the year when we have a bunch of money left over, and that's a good conversation to have.
  • Wages are based on market cost, i.e. what I have to pay to employ people vs. other companies that would pay to employ those same exact people, not my tax bracket. It's a market, pure and simple and if I hire someone it's because there are more customers willing to pay our company for our business today or tomorrow than were yesterday, not because the tax rate is low or high.
  • Institutional investors (e.g. venture capitalist organizations), don't invest in companies that sell to the rich. Yacht builders don't need investors, they need bank loans, and they are going to employ 8 or 10 people, then that's it. Investors, who want to invest in a company that's going to grow to hundreds if not thousands of employees, then make a big exit, invest in companies that sell to the middle class. So a high marginal tax rate on businesses is of no concern. However a lower income tax rate on the middle class, the customers, is of great concern. You want to start a business and grow to be the next X? You need capital and a middle class that has disposable income. The taxes you pay is not a factor in your or your investor's equation, ever. Simplified example: Buffet or Lynch's rule, 'if there's a line out the door of a place, invest in it.' No successful investor thought, "I bet they pay high taxes, so, never mind."
  • A new business pays almost no taxes. There is no barrier to entry because of taxes. It's actually the opposite, in that established businesses pay more taxes than start-ups, except for those in the news that offshore their huge cash profits, but that's not a majority of companies in the U.S. That's our 'free enterprise' system and it works. There are huge barriers to entry, however, due to capital investment and market establishment. Try writing an operating system today and selling it; it's not taxes that keeps you from succeeding, it's that it's a big investment in time and money and there are others who have invested a ton of money and time that keeps you from succeeding. The tax structure, if it makes any difference at all, helps the start-up.
  • The idea that a high marginal tax rate causes expenditures to avoid paying taxes is true. Some of that money goes to lawyers, lobbyists, and accountants. So you are correct. That will always be true when it's cheaper to hire those people than pay taxes. As a result Reagan lowered the personal income rates and shifted the tax burden to businesses, and that resulted in growth and prosperity. Note that small to medium, growing companies don't hire lobbyists.
  • The U.S. corporate tax rate used to be very low compared to other countries. Then other countries lowered their rates and the U.S. didn't follow. In other words, the U.S. didn't raise the corporate tax rates significantly, everyone else lowered theirs.
  • I, as a business owner, like the business tax. I hate paying taxes at the end of the year, it sucks thinking I earned all these profits and will get a distribution (i.e. dividend) and first have to pay a huge tax check. It pisses me and my accountant off every December. But what a lot of people don't know is that the company only pays taxes on profits, not revenue. If I had spent more money on hiring, rent, equipment, etc. then I'd pay less taxes. And that's the idea. The company is incented to hire people, buy equipment, and otherwise spend money to grow the business. Because the company doesn't pay taxes on those expenses, only what's not spent.
  • So, per the previous point, taxes influence expenses, especially capital expenses at the end of the year. If we are going to buy a server and router in February, and we know for sure we're going to do that, let's buy it now in December and take the tax break this year, when we have profits (or a higher tax bracket) rather than next year when we may not. Capital expenses and dividends are the two areas that the tax code influence business financial decisions. And the capital expenses are just shifting up expenses that would be paid anyway. Or would they? In fact it's often best to defer those expenses until they are matched by income, so a high tax rate causes companies to spend more money, at some risk, than they would otherwise.

Thursday, March 6, 2014


There are few things I find as hysterical as Dogecoin.
Yes you can even print them. Which is ridiculous. And I love it.

Dogecoin is a crypto-currency much like Bitcoin but with... well let's say a different attitude about it.
The easiest way to make Dogecoins for yourself is to go to IDigDoge. Yeah, there are other ways to "mine" the money but that's the easiest.
You'll need a "wallet" to receive your Dogecoins. I'm using Doge Vault. Feel free to send me your Dogecoins.
I've been mining for a few days now, and between that and "tips" I've gotten from Twitter I've made almost two cents!
Like I said, it's awesome. Dogecoin. The currency of the future.