It’s a Myth That Corporate Tax Cuts Mean More Jobs

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“The arithmetic for us is simple,” AT&T’s chief executive, Randall Stephenson, said on CNBC in May. If Congress were to cut the 35 percent tax on corporate profits to 20 percent, he declared, “I know exactly what AT&T would do — we’d invest more” in the United States.

Every $1 billion in tax savings would create 7,000 well-paying jobs, Mr. Stephenson went on to say. The correlation between lower corporate taxes and more jobs, he assured viewers, runs “very, very tight.”

.. this bold jobs claim merits examination. Notably, it comes from the chief executive of a company that’s already paying comparatively little in federal taxes.

.. According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes.

.. the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016

.. The company has also spent $34 billion repurchasing its own stock since 2008

.. This is money that could have gone toward research and development or hiring.

.. Because most executive compensation these days is based on stock value, higher share prices can raise the compensation of chief executives and other top company officials.

.. If claims about the job-creation benefits of lower tax rates had any validity, these 92 consistently profitable firms would be among the nation’s strongest job creators. Instead, we found just the opposite.

.. American multinationals hold $2.6 trillion in profits “offshore,” on which they would owe $750 billion in federal taxes if the money was repatriated.

Buffett Assails Money-Manager Fees as Berkshire Reports Profit Rise

Billionaire also declares victory in his $1 million bet with another asset manager that low-cost index funds would out earn hedge funds over a decade

 Warren Buffett intensified his attacks on Wall Street money managers Saturday, saying that investors wasted more than $100 billion over the last decade on expensive advice.
.. “The bottom line,” Mr. Buffett wrote, is that “when trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.”
.. Book value, a measure of assets minus liabilities that is Mr. Buffett’s preferred yardstick for measuring net worth, rose 10.7% in 2016, compared with a 12% total return in the S&P 500, including dividends.

.. Berkshire’s BNSF railroad subsidiary. Net earnings at Berkshire’s railroad fell 16% in 2016 due largely to a drop in coal demand.
.. Ajit Jain, widely considered to be one of the leading candidates to take the Berkshire CEO job when Mr. Buffett is no longer on the scene
.. Berkshire, he said, is still willing to buy back its shares if prices fall below 120% of book value.
.. Mr. Buffett praised some companies, including Bank of America Corp., for buying back shares. “Some people have come close to calling [buybacks] un-American—characterizing them as corporate misdeeds that divert funds needed for productive endeavors,” Mr. Buffett said. “That simply isn’t the case.”
.. Berkshire has warrants to buy 700 million shares of Bank of America at $7.14 apiece. The stock closed Friday at $24.23, so Mr. Buffett is looking at a paper gain of about $12 billion.
.. He attributed America’s “miraculous” economic growth to “human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law.”
.. He instead saved his sharpest comments for pricey money managers who pledge to beat the market, saying that in his lifetime he has identified “ten or so professionals” who can do so successfully.
.. “If 1,000 managers make a market prediction at the beginning of a year, it’s very likely that the calls of at least one will be correct for nine consecutive years,” he wrote.
.. In 2007 Mr. Buffett bet $1 million that his chosen index fund, the Vanguard 500 Index Fund Admiral Shares, would outperform hedge funds over the next decade.
.. Mr. Buffett in his letter Saturday praised Vanguard founder Jack Bogle as a “hero.”
.. “If a statue is ever erected to honor the person who has done the most for American investors, the handsdown choice should be Jack Bogle.”

Ayn Rand and Corporate Tax Cuts Won’t Mend the Economy

In a post on LinkedIn the other day, Ray Dalio, one of the world’s richest and most successful hedge-fund managers, offered some thoughts on the incoming Trump Administration. If “you haven’t read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset,” Dalio, the founder and chief executive of Bridgewater Associates, wrote. “This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power.”

.. his unvarnished post reflects the reality that Donald Trump, after running as an economic populist and tribune of the working stiff, has stuffed his Cabinet with billionaires, bankers, and conservative political ideologues. “This will not just be a shift in government policy, but also a shift in how government policy is pursued,” Dalio wrote. “Trump is a deal maker who negotiates hard, and doesn’t mind getting banged around or banging others around. Similarly, the people he chose are bold and hell-bent on playing hardball to make big changes happen in economics and in foreign policy (as well as other areas such as education, environmental policies, etc.).”

.. “Animal spirits” is a term from Keynes, not Rand. In his 1936 book, “The General Theory of Employment, Interest and Money,” the English economist used it to describe “a spontaneous urge to action” on the part of business people, one based on a general outlook of optimism rather than an individual cost-benefit analysis. One reason the U.S. economy has grown relatively slowly over the past eight years is that corporations have been sitting on their cash rather than investing it in things like factories, offices, and new equipment—a failure widely attributed to depressed animal spirits. Once Trump takes office, the mood may change dramatically, Dalio argued.

.. It is the sort of Randian analysis long favored by many people on Wall Street, and recently promoted by some of Trump’s closest economic advisers: if you want capitalism to work more effectively, offer greater rewards to the capitalists. Cut taxes, rein in regulation, and create an environment that incentivizes financial risk-taking. The free market—or, rather, the John Galts who inhabit the free market—will do the rest.

.. Because the U.S. tax code is riddled with loopholes, the tax rate that big businesses actually pay isn’t anything like thirty-five per cent. Between 2008 and 2012, according to a recent study by the nonpartisan Government Accountability Office, they paid a tax rate of about fourteen per cent, on average.

.. Surveys by the Federal Reserve Board and other organizations indicate that the main factor depressing corporate investment has been weak demand.

.. In many cases, companies’ overriding goal is to raise the prices of their stocks, which feature heavily in the remuneration packages of senior executives. Making costly long-term investments can depress earnings and stock prices in the short term.

.. In the twelve-month period that ended in October, companies in the S. & P. 500 spent $556.6 billion on buybacks, according to the research firm FactSet.

.. “the 2004 repatriation tax provision was followed by an increase in dollars spent on stock repurchases and executive compensation.”

.. Goldman predicted that three-quarters of the money that big corporations bring back to the United States next year under the Trump tax plan will end up being spent on stock buybacks.

What Apple Should Do with Its Massive Piles of Money

How can Apple “return” capital to shareholders if those shareholders never supplied Apple with capital in the first place? As I pointed out in my earlier post, the only funds that Apple ever raised on the public stock market was $97 million (about $274 million in today’s dollars) at its IPO in 1980.

.. finance professors at business schools throughout the nation teach MBAs and executives that, for the sake of economic efficiency, a company should “maximize shareholder value.” I disagree with this priority. MSV is based on thefalse assumption that, of all participants in the public corporation, only public shareholders run the risk of receiving no return on their contributions to the firm and therefore only they are entitled to profits if and when they materialize.

.. When you defended Apple’s tax practices before Congress, you said: “We pay all the taxes we owe, every single dollar.” The issue for the nation is, however, whether our governments — federal, state, and local — have enough tax dollars to fund all of the public investments in infrastructure and knowledge that a prosperous nation needs.