This post isn't meant to bash the Bush administration. I'm sure these companies were doing much of the same before he got here. It just pisses me off that I'm paying more in taxes than billion dollar companies.
Well, this is part of his economic strategy. The more profit a company makes, the more likely they are to create new jobs. Just as, the more a company loses, the more likelihood of layoffs.
The author is describing the story out of context.
In theory that's how it should go. Unfortunately greed take over and it doesn't really work that way.
GE had the most tax breaks but laid people off and moved the jobs to Mexico. IBM too had a bunch of layoffs. I bet if you did a search of everyone of those companies, you would find that they have smaller workforces than they did 3 years ago.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">The study examined a corporate tax benefit in the 2002 and 2003 tax bills to boost "accelerated depreciation" for companies, which was designed to encourage new investment in plant and equipment. The study finds these companies failed to do so. It found the 25 companies reporting the largest tax savings from accelerated depreciation "cut their total property, plant and equipment investments by 27% from 2001 to 2003."<hr height="1" noshade id="quote"></blockquote id="quote"></font id="quote">The CNN quote infers that it was either a bad thing or not successful, however, this is misleading, IMO.
The bonus depreciation allowance emanates from the Bush economic stimulus bill (approved by Congress) and permits firms (both corporate and non-corporate entities) to expense 30 percent of the cost of most new investment at the time of purchase. The new rules applied to investment made from September 11, 2002 through September 11, 2004 and were designed to spur investment in the short-run to combat the recession that began in 2001.
For example, under such incredible economic stress after 9/11, it would be very safe to that corporate capital improvement investment spending turned off entirely. With the economy in a tailspin, $$$ needed to be pried out of CFO's AND consumer's clenched fists with a crowbar. That ANY significant capital investment was made under such circumstances is a testament to the CEO's vision and foresight that, someday, things would improve. I believe that the CEO's and CFO's with b*lls big enough to match their checkbooks at the time were undoubtably influenced to the point of action by the accelerated depreciation bonus.
Another thought to keep in mind is this: when replacing old, obsolete capital equipment, it is not unusual to wait until it is both technologically and economically viable to do so. I.e., many co.'s will elect to hold off replacing computers until they can acheive a 30% performance improvement for 30% less cost. And, spending declined 27% from what level previously? I suspect from RECORD levels due to the late 90's and early 2000's dot.com bubble. So, while capital spending may have declined overall, I do believe this stimulus program helped move the economy out of the recession quicker, as designed.
The major feature of the new law, overlooked by many, is that the total amount of depreciation allowed (which in turn reduces tax liability) has not changed, only its timing is different. Bonus depreciation allows firms to capture the tax savings earlier rather than later. In general, overall tax liability has not been reduced – only its time path has changed. Firms will pay less tax during the early years of an asset’s life and more in later years (because write-offs will be lower in these later years). It should be noted that, at the federal level, the Joint Committee On Taxation and others have been clear to point out both the drop in federal revenues through 2004 <u>as well as the concomitant increase in revenues beginning in 2005 through 2012</u>.
If, on the other hand, a corporation claims tax deductions thru questionable and/or abusive tax avoidance schemes to reduce or eliminate paying their fair share of taxes, I say go after them and make the Principals responsible walk the Perp Walk on their way to jail. The problem is that legal tax avoidance often blurs into illegal tax evasion because America has inadequate tax treaties with offshore havens, i.e., reporting may not be truthful, and investigation is often impossible. Today, corporations can book the same income differently in different countries. International tax planning is part of the same corporate culture of creative accounting that led to the Enron Corp. scandal. In a global economy, just as we are harmonizing rules for trade, accounting, and intellectual property, we need to coordinate tax enforcement. Countries could still have different tax systems and rates, just as U.S. states do. But they should act in concert to prevent companies from spuriously booking income to escape taxes.
But the most flagrant of the offshore schemes is the reincorporation of U.S.-owned and -based corporations in havens such as Bermuda. Tyco International boasted that it saved $400 million in corporate tax payments from this in 2001. Last year, when New Britain (Conn.)-based Stanley Works announced plans (later rescinded) to reincorporate in Bermuda, there was indignation, but Congress never cracked down on corporate sunshine patriots.
Last November, departing Internal Revenue Service Commissioner Charles O. Rossotti said that of an estimated 82,100 known cases of offshore tax evasion, the IRS has pursued only 17,000 for lack of resources. Conservatives and liberals alike ought to favor consistent tax enforcement. For every dollar owed but not collected by the IRS, either taxes must rise or budget deficits must widen, sending interest rates higher and placing a heavy burden on our children to pay down the debt.
IMO, we need tax reform and enforcement ASAP.
2004 | 6MTs | Diamond Graphite/Graphite
Upstate NY
Well, this is part of his economic strategy. The more profit a company makes, the more likely they are to create new jobs. Just as, the more a company loses, the more likelihood of layoffs.<hr height="1" noshade id="quote"></blockquote id="quote"></font id="quote">It's one thing to believe that low tax rates are good for economic growth. It's quite another to suggest that the Bush Administration (or any other, for that matter) and/or it's policies actually collude in corporate tax evasion. That is simply not correct.
2004 | 6MTs | Diamond Graphite/Graphite
Upstate NY
In theory that's how it should go. Unfortunately greed take over and it doesn't really work that way.<hr height="1" noshade id="quote"></blockquote id="quote"></font id="quote">
Yeah, but wouldn't politicians be out of work if they didn't have fortune 500 CEOs and boards to pay them off? You can't really expect someone to live off a mere 200-250K a year, plus travel expenses, plus the ability to "work" from home however frequently they want, AND the power to vote for their own raises. Come on, cut them a little slack, please?
Therein lies the problem. Congressional term limits have disappeared from the national agenda.
<hr height="1" noshade id="quote"></blockquote id="quote"></font id="quote">
Think about what they really are - the voters are admitting they are too stupid to vote.
Duh ... we keep voting for the wrong doo hickky ... geezz he's stopid, howz he keep getting elected ... duh ... we have to keep ourselves from being so stopid ... lets take away our right to vote for anyone too much ... duh
Q. What's the difference between a tax deduction and a tax loophole?
A. It's a tax deduction when I get to take it, it's a tax loophole when you get to take it []
Here's a good non-partisan webdite that breaks down the ads that are running on TV and sorts the chaff from the wheat. Unfortunately there isn't much wheat left after all's said and done.
Voter ignorance and apathy is very sad indeed and never ceases to amaze me. But I find it particularly disgusting when people fail even to exercise their right to vote. 50% voter apathy!? C'mon!
I don't know if I would support term limits or not. I am definitly not a proponent of Big Gov't protecting me from myself. But then, it is clear our Founding Fathers envisioned citizenlawmakers who would serve no more than their allotted time and would return to their home communities. The Articles of Confederation limited terms of the Continental Congress, but framers of the Constitution assumed that making all House members and one-third of the Senate run every two years would assure turnover. It hasn't. New electorate come into office with enthusiasm, integrity, and zeal for serving their constituencies, but over time they change and begin to pay more attention to their re-elections. In elections beginning with 1982, more than 95 percent of House members seeking re-election have won.
IMO, the result of such entrenchment is a congressional membership increasingly isolated from the public and more concerned about consolidating personal power and perq's than serving constituents. Certainly it's important for a legislative body to include some individuals with substantial experience but IMO, there is a risk with that system of domination by career lawmakers whose incumbency gives them visibility and resources that few challengers could match.
The most powerful members of Congress include the chairmen of the Appropriations Committee's 13 subcommittees, which are responsible for designated areas of government. Those chairmen hold nearly absolute control over budgets in those areas and can use that power to help themselves and their allies politically by channeling money to their home districts. Those 13 chairmen have a collective tenure of 372 years - an average of 28 each. Service in an institution that rewards seniority allows an accumulation of power that carries the potential for abuse.
2004 | 6MTs | Diamond Graphite/Graphite
Upstate NY
There may be a few abuses - but overall, executive compensation is just different than rank and file.
A (non-qualified) stock option is the right to buy a share of stock at a certain price - usually the price at the date of hire, but grants can come from "pools" that have different exercise prices.
If a company stock is selling for $14 a share, and the new CEO get 2 million options at $14, s/he really didn't get anything. S/He has to pay $14 to buy something that's worth $14. If the CEO does a poor job, and the stock falls to $10, then the CEO pays $14 to get something worth $10 - no one would do that. If the CEO does a good job and the shares go to $40, then the CEO can exercise the options (buy the stock) at $14, sell at $40 and make $52 Million. The management team shares in the success of the company.
The Options provide a high return and encourage long term value building rather than short term profit taking. Other types of bonuses may be tied to short term profits. I've also noticed, in those reports, un-exercised options get counted in every pay year (i.e. the $52 million gets counted as "potential" compensation each year, even though it can only be exercised once)
Another thing to keep in mind is executive positions are fairly transient.
Randy - After reading the quote below, I am curious whether the type of options granted in the executive compensation and/or bonus packages of small business vs. top 100 firms executives (not rank and file employees) are NQ or actually "employee incentive stock options'. Any clue? <blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">A non-qualified stock option is a way for a company to compensate employees or service providers without paying cash. Instead, the company grants the employee or service provider an option to purchase shares of stock at a fixed price. The price is about the amount the stock is trading for when the stock is publicly traded. When the stock isn't publicly traded, the company determines the value of a share of stock on the date the option is granted. The option typically lapses on a certain date.
The incentive to the employee or service provider is to participate in the potential increase in value of the stock without having to risk a cash investment. Since this arrangement is a form of compensation, the employee or service provider generally must report ordinary income when the option is exercised. The amount of ordinary income is the excess of the fair market value of the shares received over the option price. The company receives a tax deduction for this ordinary income element reported by the employee or service provider.
The reason these options are called "non-qualified" is they do not qualify for special treatment of another type of option, called "incentive stock options." Incentive stock options are only available for employees and other restrictions apply for them. For regular tax purposes, incentive stock options have the advantage that no income is reported when the option is exercised and, if certain requirements are met, the entire gain when the stock is sold is taxed as long-term capital gains.<hr height="1" noshade id="quote"></blockquote id="quote"></font id="quote">I seem to think that one or the other receives favorable accounting treatment on the issuer's books while un-exercised as well.
2004 | 6MTs | Diamond Graphite/Graphite
Upstate NY
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Taxes or lack thereof
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