I would be in favor of massively progressive taxation of large companies. I just don’t see the value of them beyond a certain size but I see a lot of danger accumulating so much power in their hands.
I would be in favor of massively progressive taxation of large companies. I just don’t see the value of them beyond a certain size but I see a lot of danger accumulating so much power in their hands.
This isn't a natural law, it's the point at which antitrust stops letting them buy each other. If it wasn't for that they would merge to monopoly. And that few competitors is enough for them to implicitly or explicitly collude instead of actually competing.
But it only works if barriers to entry are high. Otherwise investors would see profit in going into competition with the cartel. Which is why they lobby for regulatory barriers to prevent that from happening.
> I would be in favor of massively progressive taxation of large companies. I just don’t see the value of them beyond a certain size but I see a lot of danger accumulating so much power in their hands.
What causes this is really the opposite, and what you're suggesting would make it worse.
Corporate expansion is a tax deduction to corporations because corporate income tax is a tax on profit and building new factories etc. to expand vertical integration is a cost. So they'd have more incentive to reinvest all their revenues instead of paying the tax. That's how you get Amazon.
The real problem there is that we double tax corporations. So Ian invests in Apple and his share of Apple's profits are $1000. If Apple pays the money to Ian so he can go invest it in a company that makes electric cars, he has to pay tax on it right away, and then he has less to invest. If he leaves the money inside of Apple and Apple expands into making electric cars, he doesn't have to pay the tax until he sells his shares and gets to earn returns on the money in the meantime.
So then investors have a preference for share price appreciation over dividends, which is equivalent to preferring conglomeration over returning profits to the investor to invest in independent companies. Then we get more and ever-expanding huge conglomerates and less independent companies that do one thing and do it well.
The solution is to make dividends a tax deduction to the corporation. Then corporations with money they don't know what to do with will do that for the tax deduction.
I'm ambivalent about capital gains taxes on individual investors. The rate should probably adapt dynamically, like pick a target number for the gini coefficient (or whatever) and ratchet the tax rate as necessary.
I'm completely untroubled by so-called double taxation. Squint and it looks like a VAT. It makes perfect sense to me that most every transaction should be taxed. That's kinda the point.
High tax rates on the super rich are kind of this political pablum, where everybody buys into the idea of it because the thinking is Zuckerberg is going to pay all the taxes and then you won't have to, but it doesn't really solve anything.
Zuckerberg is never going to spend that much money on consumption. Not even 10% of it. Not even 1% of it. How could you even do that? You only need so much food, so many houses and jets.
The problem is that his wealth gives him control over "Meta" and therefore everyone. But that's the same problem even if he's only the CEO. It has little to do with what percentage of the company he owns; somebody's got to be the CEO. The actual problem is that the company's too big. You can't fix that with individual income tax rates.
And if you try, the amount of resources that will get poured into tax avoidance will just eat you alive. I mean it already does. Billionaires already shield most of their wealth from taxation whatsoever, so what does it matter the rate?
Fix the thing that causes billionaires to exist, namely market concentration that causes the founder of the winning company to be a billionaire instead of there being a thousand competing companies whose founders are all millionaires.
> I'm completely untroubled by so-called double taxation. Squint and it looks like a VAT.
This is completely the opposite of VAT. The whole point of VAT is that it isn't double taxation -- if a business buys wholesale for $80 and sells retail for $100, they only have to collect VAT on the $20 difference and not the whole $100, because the wholesale seller already collected it on the $80.
To do otherwise creates a massive incentive for vertical integration because if the wholesaler buys the retailer outright they wouldn't have to pay it twice. And so it is with corporate dividends.
Just that it's dynamically adjusted as needed to meet a defined policy goal. Like reducing inequity.
The never ending tug of war drives me nuts. I get that rhetoric about taxes is more about campaigns than policy. And I don't know that capital gains rax rate is even the most important parameter.
So while I'm totally fine with repeated radical cachectomies, I'm also fine with simply rolling back GWB & Trump tax breaks, or Warren's 2% wealth tax. Whatever works.
I can't recall previously disagreeing with anything you've written. So I'm pretty sure I misunderstood your point about double taxation.
Say goodbye to electric cars.
Source: https://www.wikiwand.com/en/New_energy_vehicles_in_China
The difference isn't on taxation but investment; China invests way more in infrastructure and development.
> Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups.
Source: https://www.latimes.com/business/la-fi-hy-musk-subsidies-201...
I just 5 something years, Chinese manufacturing economy became completely unrecognisable. It's a hot money game now in a way US stock market will look rather decent, and logical.
In lights of the evergrande crisis, I'm not sure how efficient China's hugely state-directed investment system is. And much won't be achieved had there not been Deng's economic reforms and the tax indulgence that followed.
More than anything, high taxation stifles innovations in China. What you see in China is not real innovation (in the sense of inventing new things), but social-mobility [1] as a consequence of authoritarianism which can result in mass adoption of technologies, etc.
Also, considering the recent Tang Ping (躺平) movement, I don't think China's social-economy is currently in a healthy state.
[1] https://andrewbatson.com/2021/10/13/mobilization-and-modules...
Well, it is not like an antiwork movement has been forming on the US and is gaining mainstream traction. ( https://www.reddit.com/r/antiwork/ )
> In lights of the evergrande crisis, I'm not sure how efficient China's hugely state-directed investment system is.
How is a private developer that overleveraged itself the fault of a state that is investing in _public infrastructure_ like high speed rail, nuclear reactors, and tech in general? Since anything vital is public property they can do what self-called capitalists in the US cannot: let evergrande fail. (No private company in China is "too big to fail")
> No private company in China is "too big to fail"
The biggest companies in China are state owned enterprises with large ownership positions by communist party insiders.
Not only are they not allowed to fail, their share price often isn't allowed to fall. They borrow money at interest rates below the rate of inflation and often never need to pay it back. This creates a zombie banking system that is periodically recapitalized by the government, and is also capitalized by households who receive interest rates below the rate of inflation on their deposits.
This then creates a shadow banking system where households, not wanting to leave their money in official banks, search for yield, for example investing in real estate or really anything that will at least keep up with inflation and at best offer a positive return. You have pig farmers stockpiling copper. This was why the bitcoin craze took off so much in China. Households are looking for anything, anything to preserve their wealth.
This explains the phenomena of Evergrande holdings -- it is not just a private developer that "overleveraged itself", it's the direct consequence of Chinese subsidies to State Owned Enterprises.
These SOE's then burn money on everything from building exact replicas of small Swiss villages to creating electric buses and absolutely everything in between. When you are paid to lose money and are politically connected, a whole host of investment opportunities becomes available. These SOEs will not be wound down. Evergrande, however, will be wound down, but only to be replaced by the next big construction conglomerate because Chinese households aren't going to leave their money in the bank.
However households, by lending to firms, cannot rid themselves of excess deposits - that requires a financial sector that faces market discipline on the liability side of its balance sheet, which Chinese banks do not. They do not face discipline on either the asset nor the liability side, as credit analysis is determined as much by political connections as any kind of business fundamental. You are going to have a hard time even getting proper books for these businesses, which is why we find out which ones fail only when they can't make a bond payment.
Therefore as long as these financing, ownership, and regulatory arrangements are in place, you are going to have the current crazy investment market where the state firms never go bankrupt but the private firms or those firms not well connected with party insiders are regularly going bankrupt.
This does not mean that capital is being allocated wisely, even if it does mean that your favorite infrastructure projects are more likely to get funded in China. But that's only because everyone's favorite infrastructure projects are more likely to get funded in China, from completely empty shopping malls, to empty apartment buildings, to empty airports, to bizarre tourist attractions, enormous 400 foot tall gold-covered statues of the buddha, it will all get funded in China, at taxpayer expense, and none of it will ever be marked to market. But from the bird's eye view, you see a nation where the private consumption share of GDP is now below 38%, the remaining 62% spent on enormous Buddhas, electric buses, vast shopping malls, and yes, empty apartment buildings constructed by Evergrande.
... devouring resources
Not sure if this adds, but one observation I sometimes come across is this: Both Capitalism and Socialism as we know them are dependent upon resources (energy, concrete, steel, technology, etc) which cannot be taken for granted in either "finite planet" or "peak everything" terms.
Every system misallocates resources, but some misallocation is more "beneficial" than others, i.e. arguably it's better to be overcapacity on infra than under. There's something to be said about the tangible byproduct of PRC misallocation. Versus something like US tendency to misallocate resources into intangibles like the stock market, currently with capitalization to GDP nearing 200% that makes PRC misallocation that generates stuff that can be useful seem preferable in comparison. It’s like how hosting the Olympics is notoriously corrupt but simultaneously the only way for some systems to build useful things that are long term beneficial. Ditto with inefficient “industrial policy” that the PRC adopted from the US and US is learning to re-adopt. Misallocating 100s of billions to get semiconductors and turbojets for PRC or reshoring semi for US is ultimately better than not realizing those goals at all. Fast, cheap, good - sometimes optimizing for only one thing is still better than nothing. It's not efficient, but IMO PRC state-directed investment is still largely useful. Question is of course sustainabilty.