by Doctor Science
Congress is apparently likely to consider corporate tax reform this year. As David Leonhardt of the New York Times reported,
Arguably, the United States now has a corporate tax code that's the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.The Center on Budget and Policy Priorities[1] wrote a report outlining What Should Corporate Tax Reform Look Like?
- Contribute to long-term deficit reduction: All parts of the budget and the tax code, including corporate taxes, should contribute to deficit reduction. Well-designed corporate tax reform can improve economic efficiency and help on the deficit-reduction front at the same time.
- Reduce the tax code's bias towards debt financing.
- Reduce the tax code's bias toward overseas investments.
- Improve economic efficiency by reducing special preferences.
- Provide more neutral treatment of corporate and non-corporate businesses.
- Take specific steps to discourage tax sheltering.
I find these proposals thoughtful, well-intentioned, and meaningless.
How could they *not* be perceived and attacked as tax increases? A lot of people agree that "close the loopholes, lower the rates" is a good general formula -- but if it ends up with more corporate tax revenue being collected, it's a tax increase. I think corporations are too powerful (with Democrats as well as Republicans) and too united on this issue for any increase in the actual taxes they pay to be politically feasible.
A number of commenters at the NYT argue that corporate taxes should either be eliminated (and replaced with a VAT or similar), or that corporations, who are "persons", should pay income tax like the rest of us persons. My worry about the former is that it would lead to an even more regressive system than what we've got (though I don't have experience living in a VAT-based society, so tell me more); my worry about the later is that it is a unicorn-based pipe dream. Or a pipe-based unicorn dream, or something.
Unicorns: as difficult to track down as corporate tax reform. But prettier.[2]
My basic attitude toward taxes, btw, is that "flat" or "fair" taxes aren't. Fairness is measured not by how much you pay, but by how much it hurts. For a family with an income of $40K (we've been there), 10% is very hard. For a family income of $200K, 10% is easy. With an income of $20M, 10% is peanuts. A tax code based on "flat pain distribution" would probably have Eisenhower-era rates. I am OK with that, but I think the idea is smokin' with the unicorns.
But this is an area where I know very little, so I invite you-all to lecture me. Politely.
[1] They call themselves "non-partisan", but since they work "at the federal and state levels on fiscal policy and public programs that affect low- and moderate-income families and individuals", I feel secure calling them "left-of-center".
[2]source
My understanding is that most other first-tier economies actually do have more regressive tax systems than the US, but they also have less extreme income inequality in the first place (because of some combination of a more comprehensive social safety net and less ridiculous norms for executive compensation), so it's not as big a deal if the tax system is more regressive. In the US, where a substantial fraction of the population is already living on the edge and the welfare state is weak to begin with, we might have more trouble with a VAT or sales-tax scheme.
And, of course, most of the flatter-tax proposals out there involve vast reductions in overall revenue, which wouldn't help the situation any.
Posted by: Matt McIrvin | March 02, 2011 at 10:40 PM
Something I'd like to know and don't: are corporations in the UK, Germany, Japan, etc. "chartered" at the national level, or at the county/province/prefecture level?
--TP
Posted by: Tony P. | March 02, 2011 at 10:47 PM
I'm not in Japan to double check this, but I believe it is at the National Level. They are registered at the Legal Affairs Bureau, but it is the national LAB rather than the prefectural.
Bonus useless factoid. Corporation law in japan is based on the Illinois Business act, because the Americans charged with revising this aspect of the Japanese law code all hailed from Chicago. Imagine if they'd been from Delaware...
Posted by: liberal japonicus | March 02, 2011 at 11:46 PM
I worked under VAT for some time and even tough it is not really progressive taxing, one thing is making it seems less unjust. different countries have minimal variations around this tree rates 15, 19 and 23% on income, where first income in amount of living expenditure in not taxed. That makes it progressive enough.
Then there is sales VAT that is about 19% on almost everything except bread, wheat flour and milk. The luxury items are with higher VAT 23%, items like boats (non-industrial) and cars with engines over 2,000cc.
What makes it seem as it is less unjust then US taxes is that it doesn't evolve, it is same for decades, and people had time to adjust to it as such. It is a very subjective perception as just taxes.
Corporations pay VAT only on profit, just as here is (if)so it has no effect on job creation. Taxing profit does not affect number of jobs. Only profit is taxed, not operating expenses, and jobs are operating expenses.
Robert Reich is arguing that marginal high personal taxes, 70% and up, used to force CEOs and owners to keep money inside a company, invest back into it which would create jobs. There was no incentives to take extra money out and then pay high taxes on it just to keep some of it.
Posted by: crithical tinkerer | March 03, 2011 at 12:04 AM
Maybe we need to distinguish progressivity at the low end of the tax system from progressivity at the high end.
I think we'll see higher tax brackets for the very rich again in my lifetime. Maybe not 70% but the pendulum will swing back. During the Nineties boom it seemed to make sense to ask "who cares about increasing inequality if everyone benefits?" and conservatives and libertarians still bring this up as a sort of thought experiment. But it gets more and more obvious every year that in the real world, US society as a whole isn't getting anything good out of it, and economic growth, when it happens, is just being eaten up by the rich. At some point even the sort of rich have got to see that it's the super-ultra-rich, and not welfare queens or the ungrateful masses, who are taking all the dough.
Posted by: Matt McIrvin | March 03, 2011 at 07:16 AM
I'm mostly in agreement with this post.
Get rid of the loopholes. Corporations, like most of us, are going to take advantage of any and all opportunities to minimize their tax burden. So let's make both the corporate and personal income tax code so simple that nearly anyone with even a modicum of financial savvy can fill out a near-optimum return.
Flat tax is another topic altogether, IMO.
Posted by: Slartibartfast | March 03, 2011 at 08:09 AM
The thing about flat-tax proposals is that they tend to suck all the oxygen out of the air when people talk about tax simplification; a lot of people have the weird idea that brackets are what make the tax system complicated.
And I remember distinctly that the Reagan-era cuts in high marginal rates were sold as tax simplification measures. They may even have been; my understanding is that the high top marginal rates in the 1950s/60s had a lot of loopholes that went along with them.
Posted by: Matt McIrvin | March 03, 2011 at 08:33 AM
Don't use brackets, use a simple formula that for any amount of $$$ input yields a specific % of taxation (with a cut-off on at least the upper end, so it cannot go >100%)! And cut down the jungle of exemptions.
Posted by: Hartmut | March 03, 2011 at 08:55 AM
We probably don't have any high end tax people here. Too bad. I favor a much lower corporate tax rate, say around 15%, but I want the income taxed, not passed through some Cayman operation. But, before we get to discussing rates and deductions, I am not sure our chart tells us anything useful.
When we look at the chart, and see the effective rates, we're thinking: What the hey, Exxon is paying 5% taxes?
I suspect that what we are seeing here is all corporations, including Mom and Pop Sub S corps, which pay no tax because all of the income flows through the corp to the individual and is taxed at the higher personal income tax rates.
Charts are fun, but the underlying data are the real story.
Another thing: dividends, taxable to the stockholder, are paid from after tax corporate income, that is the owner (the shareholder) pays corporate tax and then individual tax on a much diluted dollar. This forces companies to do stupid things. Better to allow distribution of earnings pre-tax, let the owners pay their individual tax rates, and see what happens. No one knows since it's never been done.
Posted by: McKinneyTexas | March 03, 2011 at 09:07 AM
That's what brackets are, anyway; it's just a formula that happens to be piecewise linear. In practice, if you're one of the dwindling class of people who use paper tax forms, it's either table lookup or a formula once you fall off the top end of the table. And of course the computer programs are doing the same thing.
Posted by: Matt McIrvin | March 03, 2011 at 09:34 AM
...piecewise linear in tax before credits and rebates, that is, not in percentage of overall taxable income.
Posted by: Matt McIrvin | March 03, 2011 at 09:36 AM
Better to allow distribution of earnings pre-tax, let the owners pay their individual tax rates, and see what happens.
That sounds interesting to me. I'd have to think someone has looked at this and done an analysis.
a lot of people have the weird idea that brackets are what make the tax system complicated.
You weren't at the next table at the diner on Sunday when my father and I were having breakfast, were you, Matt? Well, at least he did talk about getting rid of deductions along with his flat-tax proposal. But he had no idea what that flat rate should be, or how it might affect people with low incomes.
I think some people like the flat tax because it's simple, despite the fact that brackets aren't really that complicated. Depending on your math background or level of effort in examining the bracket system, there's a hard ceiling for tolerance of complexity, and it isn't high. For others, I think it's just a way to reduce taxes on the wealthy while looking like a regular Joe.
Posted by: hairshirthedonist | March 03, 2011 at 09:38 AM
...Though one nice thing about not calling them brackets is that it might eliminate the dishonest political practice of pretending the bracket rate is a percentage applied to all income, rather than a marginal rate applied to taxable income over the bracket threshold. No more of that silliness like "the tax code is forcing me to make less money so I don't get into the high bracket!"
Posted by: Matt McIrvin | March 03, 2011 at 09:41 AM
Oooh, I with you guys on the brackets & complexity pet peeve. Brackets (ack, as Matt points out, bad name) are NOT the problem. Deductions and such are.
My issue with the Simpson-Bowels tax reform idea was that they wanted to go to just 3 brackets, which IMO is ridiculous. More brackets, please. Rip out the deductions, sure. Then re-balance the rates accordingly. But right now, the rates max out at a few hundred grand in income. We have people making hundreds of millions...
Oh, and that raises cap gains taxes again...
Posted by: Rob in CT | March 03, 2011 at 09:47 AM
A lot of this comes out of me thinking about conversations I had with my dad about 25-30 years ago, when he was about the age I am now. I think he's wised up since then (he has a degree in mathematics but didn't pay the level of microscopic attention to political economy that some bloggers do).
Posted by: Matt McIrvin | March 03, 2011 at 09:48 AM
That sounds interesting to me. I'd have to think someone has looked at this and done an analysis.
It's been talked about for decades. No one has ever done anything about it.
I think some people like the flat tax because it's simple, despite the fact that brackets aren't really that complicated.
Flat tax is not going to happen on the individual side. Over time, the discussion has morphed into reducing or eliminating most personal deductions and lower to the top marginal rates. You address regressivity by starting the tax at some level higher than the current level, say at 40K for H & W filing jointly.
Posted by: McKinneyTexas | March 03, 2011 at 09:52 AM
As for corporate taxation...
Same basic idea. Rip ou the loopholes and such and make it friendly to small businesses (I'd define that in terms of profit, not # of employees)... in a sense, progressive. I think we can all sympathize with the "mom & pop" store down the street trying to deal with heavy taxation, whereas I have really no worries that Exxon Mobil, Microsoft, etc can handle it.
The only worry is that a big multinational might up and leave if you take out the "complexities" that save them money. I'm willing to be convinced there (my moral sensibilities take a backseat to effectiveness when it comes to something like the tax code).
Posted by: Rob in CT | March 03, 2011 at 09:56 AM
If those are the companies that actually don't pay a penny in corporate taxes and even get a rebate, them leaving would be actually an improvement.
Posted by: Hartmut | March 03, 2011 at 10:13 AM
@McTex: I suspect that what we are seeing here is all corporations, including Mom and Pop Sub S corps, which pay no tax because all of the income flows through the corp to the individual and is taxed at the higher personal income tax rates.
One note. In those companies where income "flows through" and is taxed at the individual rate, there is one more kicker. If you are an employee of a corporation, your health insurance premiums are a (tax-deductible) business expense. And for the company, taxes are only on the net profits. But if the income flows through, any health insurance costs are considered income to the owners, and taxed accordingly. Just one more dis-incentive to starting your own business.
Posted by: wj | March 03, 2011 at 10:21 AM
If those are the companies that actually don't pay a penny in corporate taxes and even get a rebate, them leaving would be actually an improvement.
Not really. Every salary they pay is taxed and the remainder fuels the economy. Multi nationals are not without bargaining power, whether anyone likes it or not, and if we push too hard, they pick up their marbles and move.
Posted by: McKinneyTexas | March 03, 2011 at 10:26 AM
Just one more dis-incentive to starting your own business.
I know that's true for LP's and LLP's but for Sub S'? I am not so sure. In any event, my last firm was a PC (professional corporation). I wasn't taxed on my health insurance, but then again, we distributed every penny in the bank on 12/31 as bonus (taxed only once, to the individual) and didn't do a flow-through on expenses.
Which, BTW, is how you get around double taxation on small businesses. The dumb part is that you start every year in debt because you have no operating capital for the first couple of months and you spend the middle part of the year breaking even, hoping to hell the year ends well.
Now I'm depressed.
Posted by: McKinneyTexas | March 03, 2011 at 10:32 AM
But for operations in the US the salaries should still be taxed there.
If* politicians were not as corrupt as they are, there'd be a lot of legal options to keep them from running away. No need to extend any privileges to 'foreign' companies.
*modus irrealis
Posted by: Hartmut | March 03, 2011 at 10:34 AM
No more of that silliness like "the tax code is forcing me to make less money so I don't get into the high bracket!"
When I was but a lad, working at a gas station, the owner told me that giving me a raise would put me into a higher tax bracket and that I'd end up bringing home less money. By then I had already taken differential equations, but still didn't know that my employer was full of it, so I can see where a math degree might not help if you weren't paying attention.
Regarding corporate taxes, I've heard two arguments from the same people at different times, depending on the conversation. One is that corporations will simply pass their tax burden onto the consumer, so raising taxes on corporations is raising taxes on individuals. The other is that taxing corporations reduces their levels of investment and employment, which would mean that they aren't passing their tax burden on to individuals, not entirely, anyway. I suspect it's really a bit of both, leaning one way or the other depending on the specifics. At any rate, I guess I'm not entirely opposed to eliminating corporate taxes altogether, provided that something changes drastically in other parts of the tax code, particularly with regard to unearned income. Then again, unicorns, right?
Posted by: hairshirthedonist | March 03, 2011 at 10:46 AM
McKinneyTexas:
Actually, if you read the NYT article I linked, it *is* that the very large corporations -- where the money is -- are paying egregiously low taxes. It's not income pass-through by small corps that's behind that chart, it's creative accounting and personalized legislation by large corps.Posted by: Doctor Science | March 03, 2011 at 10:51 AM
Matt McIrwin:
"Have got to see"? What evidence do you have that anyone with power will be compelled to see and act against the super-ultra-rich?Part of the point of my post is that I see NO political will to raise taxes on anyone who can afford to pay.
Posted by: Doctor Science | March 03, 2011 at 11:02 AM
Multi nationals are not without bargaining power, whether anyone likes it or not, and if we push too hard, they pick up their marbles and move.
Which is why it is very, very bad for the political class to conflate corporatism with patriotism. What's good for GM is not always what's good for America, not anymore.
Posted by: Phil | March 03, 2011 at 11:18 AM
It's not income pass-through by small corps that's behind that chart, it's creative accounting and personalized legislation by large corps.
Then I stand corrected. I would like to know how they do this and how tax rate was calculated. Corporate tax is incredibly confusing at those levels. For example, congress wants people who build airplanes to keep building and stay employed. We all want 'new' airplanes, not planes that are 30 years old. So, how to encourage that? Cut deals on taxes. Still, I'd like to know how the rates are so low and what the calculations are based on. By this I mean, if the rate paid is 4%, well that's not even a published rate. Or, did Boeing have income of 50K only? I doubt it. Or, is this "effective rate" because so much of the money was "earned" elsewhere and taxed where earned rather than here? Just as efforts to encourage employment and promote safe airlines have consequences, so too does a higher domestic tax rate--it pushes money and jobs offshore.
Posted by: McKinneyTexas | March 03, 2011 at 11:38 AM
If you asked me two months ago I would have said there was no political will to resist the demolition of public-sector unions. The interesting thing is that left-wing economic sentiment seems to be greater in young people, which (as Josh Marshall just said over on TPM) is the opposite of all the intuitions I developed in my own youth.
Posted by: Matt McIrvin | March 03, 2011 at 12:04 PM
Or, is this "effective rate"
I'm pretty sure it's the effective rate for all corporate income taxes paid anywhere, assuming the explanation for Carnival Cruise lines holds for the other companies mentioned:
Carnival’s biggest government benefit of all may be the price it pays for many of those services. Over the last five years, the company has paid total corporate taxes — federal, state, local and foreign — equal to only 1.1 percent of its cumulative $11.3 billion in profits.
So, yes, effective rate, which I assume is calculated based on income as reported in financial statements. This has its own problems because financial statement income is not equal to taxable income, and in many cases is not even close.
because so much of the money was "earned" elsewhere and taxed where earned rather than here?
I like the scare quotes around "earned," cause it's hard to see how these multi-national companies manage to "earn" so much money in, say, Bermuda, or the Cayman Islands, or some other small island nations, where there are no factories, distribution centers, call centers, service centers, or, really, not many people at all. In fact, many MNCs do not have a single employee in those locations, yet somehow manage to "earn" profits there.
You also need scare quotes around "taxed" as the MNCs aren't paying much, if anything, to these countries in taxes.
Posted by: Ugh | March 03, 2011 at 12:22 PM
Arguably, the United States now has a corporate tax code that's the worst of all worlds.
OTOH, people have argued exactly the opposite, from a corporate tax department perspective.
Posted by: Ugh | March 03, 2011 at 02:34 PM
McK,
Still, I'd like to know how the rates are so low and what the calculations are based on.
I think these rates reflect the share of earnings actually paid rather than the statutory rates, which are reported in SEC filings.
These filings often contain an obscure section - a note to the P&L - that explains it all. It takes a bit of digging to figure it out. There are two factors that affect taxes actually paid - various special credits and foreign tax arangements, and deferred taxes.
For Boeing, for example, look here. Scroll down to note 5 and you'll see how an ostensible tax bill of $1.196 billion turned into a credit of $44 million for 2010.
The path begins with the "reconciliation of statutory and effective rates" (look further down in note 5). This shows how a statutory 35% rate drops to an actual 26.5%. That's where the $1.196 billion comes from.
Then look at the top of note 5 and you will see a huge "deferred tax" item. This reflects taxes accounted for in 2010, but not due to be paid until later. This happens for a number reasons, but the most important is that depreciation of assets is treated differently in GAAP (Generally Accepted Accounting Principles - the method used for financial reports to investors and so on) than in the tax code. The tax code has different rules. You get to deduct much more depreciation than you show as an expense on your books. So a GAAP depreciation expense of $1000, say, may be an expense of $1500 for current tax purposes. That saves taxes on $500 this year, and creates a deferred tax liability.
Presumably you will have to make this up in the future - that's what "deferred" means, after all. But even being able to shove it off for a year is worth a lot. Boeing's deferred tax liability is $1.24 billion. At any reasonable rate of return, just delaying payment by a year is worth a lot of money.
One of my ideas is that corporate taxes should be calculated, and paid, on the profits reported to investors. That would simplify matters somewhat, and make things a touch more transparent. You could lower tax rates, cutting off ill-informed and dishonest complaints about the high level of US corporate taxes, without hurting revenues.
Posted by: Bernard Yomtov | March 03, 2011 at 07:06 PM
One of my ideas is that corporate taxes should be calculated, and paid, on the profits reported to investors. That would simplify matters somewhat, and make things a touch more transparent. You could lower tax rates, cutting off ill-informed and dishonest complaints about the high level of US corporate taxes, without hurting revenues.
How would capital costs be recovered? Is there another way besides depreciation?
Posted by: McKinneyTexas | March 03, 2011 at 07:34 PM
McKinney -
The tax would be on US GAAP (eventually to be replaced by IFRS -- International Financial Reporting Standards -- if the US and everyone else can come to agreement on what a new IFRS should look like) reporting which already includes depreciation. What should not be deducted in corporate taxes is the cost of interest. We need a five to ten year phase out of _all_ interest deductions.
I would like to (1) replace corporate taxes and (2) payroll taxes, and (3) mandate that every company increase pay by the amount they save on payroll taxes, and possibly (4) part of workers' comp insurance, and (5) charge enough to pay for all medicaid, but (6) eventually expand it to cover all health care with a VAT of about 15% -- roughly the same as our current payroll tax for those earning less than $100,000 (will not cover everyone's medical, that will take about 20% VAT). To make VAT mildly progressive, we can give every adult a tax credit of $1,000 and every dependent child a tax credit of $500. The impact will be on those with higher earnings and on importer. VAT is _the_ approved method for raising taxes on imports.
Posted by: David Jensen | March 03, 2011 at 10:18 PM
Bernard Yomtov -
One of the more interesting things to financial reporting nerds is that the only industry that routinely has a deferred tax asset is insurance. Unlike the rest of business, IRS rules force insurance companies to recognize income that they do not yet have according to the rules that insurance regulators have (Statutory Accounting Practices as prescribed by the National Association of Insurance Regulators) because insurance regulators really, really want conservative reporting of assets. They don't like taking over failing insurance companies, but when they do, they get to fight with the IRS.
Posted by: David Jensen | March 03, 2011 at 10:24 PM
David Jensen:
Unicorn detected!They won't do it. I mean, I *cannot imagine* that companies will increase pay, or even if they do (which is at least a Javan rhino, if not a full-fledged unicorn) they won't do it fairly, and the increases won't stick.
What companies will do, if such a thing is made law, is fire *everybody* from certain divisions (everybody on the lower 2/3 of the food chain, anyway), and then re-hire at the old wages, but without paying payroll tax. And give all the jobs new names, to make it as difficult as possible to say "Old Job A cost $50K+$10K payroll tax, replaced by New Job B costing $51K, you can whistle for the payroll tax".
Posted by: Doctor Science | March 04, 2011 at 12:03 AM
Those Javan rhinos look totally stop motion animated ;-)
Posted by: Hartmut | March 04, 2011 at 04:50 AM
Doesn't anyone remember the mid 80's?
Reagan and his merry krew pushing a big tax "simplification":
Step 1, remove lots of loopholes, simplify the structure.
Step 2: GOP pols collect $$$ from their buds in industry to put back all kinds of new, improved loopholes for exploitation.
It was a shakedown disguised as a reform. The difference with today is that there's not even a pretence of reform.
Posted by: Snarki, child of Loki | March 04, 2011 at 09:14 AM
GOP pols collect $$$ from their buds in industry to put back all kinds of new, improved loopholes for exploitation.
There is a school of thought in tax circles here that the large number of temporary tax provisions are temporary exactly so the lobbyists will have to come around every 1-3 years to make sure they're extended. This works for the GOP and Dems alike.
Posted by: Ugh | March 04, 2011 at 09:24 AM
Hartmut:
That's because the automatic cameras that filmed them have a rate of seconds per frame, not frames per second.
Posted by: Doctor Science | March 04, 2011 at 09:38 AM
McK,
How would capital costs be recovered? Is there another way besides depreciation?
It would still be through depreciation, but the schedules used for tax purposes would be the same as those for standard financial reporting - straight-line usually.
I suppose you could give companies a choice. Use accelerated depreciation and have lower earnings and lower taxes or standard and have higher earnings and taxes. Right now you get higfh earnings/low taxes because you use different schedules for taxes and reporting.
I suspect most companies would choose high, unwisely really, because they place a huge premium on reported earnings as opposed to cash flow.
David Jensen,
That's interesting, actually. Insurance accounting is a little flaky anyway. What income is it that they recognize early?
Posted by: Bernard Yomtov | March 04, 2011 at 10:01 AM
I suspect most companies would choose high, unwisely really, because they place a huge premium on reported earnings as opposed to cash flow.
That and that's the manner in which most employees are compensated, though a lot of companies do compensate based on after-tax results.
Posted by: Ugh | March 04, 2011 at 10:14 AM
Ugh:
that's the manner in which most employees are compensated, though a lot of companies do compensate based on after-tax results
Which way is the top level of management compensated? ISTM that that will be the determining factor.
These days, corporations are ostensibly run for the benefit of the stockholders *only* (not, e.g., also for the benefit of customers or employees), but what I have observed over the past decade at least is that they are *actually* run for the personal benefit of corporate executives.
As I understand it, using stock options as a major component of executive compensation is intended to tie the interests of executives more tightly to those of stockholders. But (as I understand it, and my view is very much that of an outsider) what is actually going on is that corporations, and the laws they pay for, are managed to maximize the personal wealth of executives.
So (thinking as I type, here), the drop in corporate taxation in that graph is really about a drop in taxes on the rich. And the goal of tax reform IMHO should be to, yes, RAISE THEIR TAXES.
I keep being reminded of something I read long, long ago, when I was in high school AP European History. When some French finance minister or other proposed taxing the Second Estate (the nobility), they refused, because the point of taxes was to support them. They *owned* the country, dammit!
Just for reference, a tumbril was a garbage or manure cart.
Posted by: Doctor Science | March 04, 2011 at 12:39 PM
These days, corporations are ostensibly run for the benefit of the stockholders *only* (not, e.g., also for the benefit of customers or employees), but what I have observed over the past decade at least is that they are *actually* run for the personal benefit of corporate executives.
As I understand it, using stock options as a major component of executive compensation is intended to tie the interests of executives more tightly to those of stockholders. But (as I understand it, and my view is very much that of an outsider) what is actually going on is that corporations, and the laws they pay for, are managed to maximize the personal wealth of executives.
You understand it pretty well. Just to add a bit: stock options do not align managers' interests with shareholders' in theory or practice. In theory they encourage excessive and unwise risk-taking, because once they are worthless, it doesn't matter how low the stock price goes. They can't be worth less than zero.
And the practice is worse.
You're right about the laws also. It is extremely difficult and expensive to challenge incumbent board members, who are almost always selected by management and "elected" by shareholders in Soviet style single-candidate elections. And of course being on corporate boards is often pretty easy money, so there is not much incentive to upset the apple cart.
Posted by: Bernard Yomtov | March 04, 2011 at 02:20 PM
When some French finance minister or other proposed taxing the Second Estate (the nobility), they refused, because the point of taxes was to support them. They *owned* the country, dammit!
And his name lives on.
Posted by: Hogan | March 04, 2011 at 04:18 PM
Raise the taxes of the rich. They won't like it, but there are more of us than there are of them, and it seems just a matter of time before those who are not rich won't even have a pot to pee in.
Posted by: Spiny Adagio | March 04, 2011 at 05:03 PM
DocScience: Hartmut:
That's because the automatic cameras that filmed them have a rate of seconds per frame, not frames per second.
Guessed that much but some of the movements look like right out of Gertie the Dinosaur ;-)
Posted by: Hartmut | March 05, 2011 at 04:54 AM
Spiny Adagio, be careful with that. There are officially more millionaires in New Jersey than public school teachers. ;-)
Posted by: Hartmut | March 05, 2011 at 04:55 AM